Amerivest Feature Review and Comparison

As mentioned in my last post, Amerivest is Ameritrade’s new attempt to bringing a flat annual fee to discount investment planning, instead of commissions for each trade. First, they have some software ask you a few questions on your risk tolerance and investment amounts, which spits out one of 25 predetermined baskets of index ETFs. Each basket has what looks like 4-7 ETFs in the proportion to create the asset allocation that it decides you need. It then tells you how much you need to invest each month to reach your goal.

I used their online chat to find out more about the service:

» They don’t offer actual human advice. For example, you can’t tell them your situation details and have them customize your plan. You can alter the basket, but advise-wise the computer is all you get.

» If you send them monthly automatic cash transfers, they will invest your money each month across the ETFs in your chosen basket. Again, no trade commissions.

» The basket determined by the software available for free is what you would buy using their service, although you can modify it if you want. You can view my result, their most aggressive portfolio, here. In other words, it doesn’t automatically change with time as you get older, and it doesn’t seem to plan for taxes or fees.

» They do re-balance your portfolio automatically at the interval you choose, say annually, so your asset allocation does not shift too far away from its intended percentages.

» They do not automatically reinvest dividends. Dividends are invested during your periodic rebalancing.

So how much does this cost? Here’s is their rate chart:

One way to compare this to imagine if you wanted to dollar-cost-average into 5 different ETFs every month. With Amerivest, a $20,000 portfolio would cost $100 a year and a $100,000 portfolio would cost $350 a year. At Ameritrade’s usual brokerage pricing of $11 a trade, that’s 60 trades a year = $660 a year in commissions. And that doesn’t even include any trades you would have to do to rebalance your portfolio. Of course, at MB Trading those 60 trades would cost only $60 a year unless you were buying more than 100 shares at a time.

In the end, I think that this service is much closer to what companies like ShareBuilder, FolioFN, and BuyandHold provide rather than any real portfolio management. For example, Sharebuilder gives you 6 trades per month at only $12 a month, for a total of $144 a year regardless of your account balance. Similarly, they give you guidance on a suggested basket of ETFs with their PortfolioBuilder feature.

Finally, Amerivest’s extremely optimistic projections do smell a bit like a marketing ploy. And I don’t see why they have to charge more for a $50,000 portfolio vs. a $500,000 portfolio, as they aren’t actually doing anything more.

Comments

  1. I don’t think I would call Amerivest’s projections “extremely optimistic” just “simplistic.” Amerivest directly correlates higher risk tolerance to higher returns. It sounds like an arithmetic average of statistical returns for particular classes of investments. Many advanced retirement calculators use geometric averages and Monte Carlo analysis to determine not just what is the “average” return but what are your chances of winning big or, especially, losing big. I think the Amerivest suggestions are a great starting point for the average Joe, but the long-term formulas should certainly incorporate a confidence (i.e. 95% or 99% chance of hitting your target given market fluctuations) and a decreasing risk tolerance over time. Maybe you can do a Java calculator? :-)

  2. Wow that is expensive!

  3. Brandon, you make good points, but assuming NO taxes and NO fees is what makes me think it is both simplistic and optimistic. They could have done any of the following:

    - If they can give you the numbers, they can at least give you the years they used to get those averages so we can see if they are right

    - Simply account for their own fees,

    - Ask for a tax bracket and do some estimates.

    I agree with the confidence levels too. Many other calculators incorporate Monte Carlo simulations to provide those confidence levels.

  4. Are you still with Amerivest? What do youthink of their program now?

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