Robo-Advisor
IntermediateA robo-advisor is an online service that uses automated algorithms to create and manage investment portfolios for clients, usually at a lower cost than a traditional human financial adviser.
Robo-advisors typically ask clients to complete an online questionnaire about their goals, time horizon, income and attitude to risk. Based on the answers, the service recommends a diversified portfolio, usually built from low-cost index funds or exchange-traded funds.
Once the portfolio is set up, the robo-advisor manages it automatically, rebalancing when the asset mix drifts from its target and, in some cases, managing taxes, for example by selling investments at a loss to offset gains where the rules allow.
For example, a 30-year-old saving for retirement might answer questions that lead the robo-advisor to recommend a portfolio of 85% shares and 15% bonds, which it then maintains automatically as markets move and new contributions arrive.
The main advantages are low fees, low minimum investments, convenience and disciplined, rules-based investing. They have made professional-style portfolio management accessible to people with smaller amounts to invest.
Robo-advisors may be less suitable for people with complex financial situations, such as business owners, people with significant tax planning needs or those wanting personal guidance through major life decisions. Many firms now offer hybrid services that combine automated portfolios with access to human advisers.
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