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With so many online brokerages offering services to help investors create customised ETF portfolios, I decided to take one for a test drive.

I chose Amerivest, the advisory service of TD Ameritrade, which proclaims to be the ultimate in goal-based investing. “One of the things people do badly is time investment decisions,” says Richard Walsh, managing director of the company’s investor group. “This platform keeps people disciplined and is designed to help them stay with a strategy.”

Before you invest, you have to complete an online questionnaire that asks for details on your timeframe for investment, the amount of money you have to invest, what your goals are and the amount you need to obtain those goals. You are even encouraged to name your investment plan after your goal – Operation Ski Cabin or Aim to Retire Rich, for instance.

Based on your answers, Amerivest recommends an asset allocation model for your very own ETF portfolio. The service automatically rebalances your investment – if your goal is retirement, the allocation will change as you get closer to the date, for example, and also tells you if you need additional sums to reach your goal.

Amerivest says it uses only ETFs because they are cost effective and tax efficient. It forgoes ETF commissions and charges a flat fee – 0.5 per cent of assets for portfolios less than $100,000 and 0.35 per cent for larger accounts, plus the underlying expenses of the fund for the year. Accounts of less than $20,000 are charged the lesser of $100 or 2.95 per cent of assets.

Sounds good but does it work? To find out, I invented three pseudo-investors of varying ages, income levels, risk tolerance and goals.

Investor One is a professional Chicago couple in their mid-thirties who have two young children. They are saving for their kids’ college education. They have $50,000 to invest and they will need the money in 14 years.

Investor Two is a 58-year-old silicon valley entrepreneur in excellent health who plans to retire in six years and travel the world. She has $1m to invest and it needs to last for at least 30 years.

Investor Three is a high-flying, 40-year-old New York City-based surgeon who owns an Upper West Side brownstone but dreams of buying a modest beach bungalow on the Jersey shore. He has $500,000 to invest.

In order for the young family to reach their goal for tuition payments, they will need to invest an additional $5,175 a year – assuming 5 per cent inflation. The model advised them to put 30 per cent of their investment in the Russell 1000, 27 per cent in the MSCI EAFE, 15 per cent in the S&P 500 and 12 per cent in the MSCI emerging markets index, with the remainder divided between the Russell 2000, Treasury bond funds and cash.

The Silicon Valley retiree aims to have an income of $100,000 a year. According to the model she will need to add $3,241 a year – assuming 3 per cent inflation. The model recommends she puts 40 per cent of her investment into treasury bonds and 17 per cent in the MSCI EAFE Index, with the remainder invested in the S&P 500, real estate, emerging markets and mid-caps.

The surgeon needs the money in 10 years. The model did not require him to make additional payments. It advised him to put 30 per cent of his investment in treasury bonds, 20 per cent in the MSCI EAFE Index, 15 per cent in the Russell 1000 Index, 11 per cent in the Dow Jones Real Estate index, 9 per cent in the MSCI emerging markets index, 8 per cent into an S&P index fund, and the remainder divided among a few other funds.

Just for fun, I asked Amerivest to run the numbers as though my three investors had created these ETF portfolios 10 years ago. The couple with the college-bound brood ended up with $181,000. The retiree’s investment increased to more than $2m. And the surgeon? His investment grew to $1.1m.

He can almost hear the surf now.

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