Robo-advisors, also known as robos, are automated investing platforms or online advisors that use proprietary algorithms to help people save for their financial futures. When you sign up with a robo-advisor, you answer questions about your risk tolerance, investment goals, time horizon and other key factors that will contribute to your overall investing strategy.
The software uses your data to determine the best asset allocation for you and, as you invest, it keeps your portfolio balanced. Robo-advisors typically gravitate toward passive investments with ETFs and mutual funds, though some may allow you to choose investments that meet your personal criteria, such as socially responsible investments. Some robo-advisors will also offer services such as tax-loss harvesting or financial planning with a human representative.
Robo-advisors are great alternatives to financial advisors because they are available 24/7, automatic, and lower cost (there usually no commission fees to trade and lower account minimums, if any). But it’s important to look out for fixed and percentage fees on your assets under management.