Investing Doesn’t Have to Be Intimidating: All the Pros (and Cons) of Robo Advisors

Start yours invest Travel can be daunting. How do you invest in stocks? How about cryptocurrency? Do you need a lot of money to start? There are mountains of financial literature that answer these questions and more, but it can still be difficult to know where to start and which stocks and securities are worth investing in. There’s a beginner-friendly option that will do the work for you: a robo-advisor.

These automated financial advisors are controlled by AI and programmed to put your money to work. The best part is that you don’t have to invest large sums of money, know-how or a lot of time. All you need to sign up is answer a few questions about your investment goals and meet the account minimum (if any), and boom, you’re on your way to investing.

Here’s everything you need to know about these automated investment services and what to consider when making your selection.

What is a robo advisor?

A robo advisor is an automated financial advisor and investment platform. The system uses a software algorithm to build and manage your portfolio so you don’t have to. When you sign up for a robo advisor, answer a few questions such as:

  • How old are they?
  • When do you plan to retire?
  • What type of investor are you (conservative versus aggressive)?
  • What are your investment goals?
  • Are you looking to invest to retire, generate income, build wealth or save for a major purchase?

Instead of a financial expert, robo-advisors use automation and software to create and manage your portfolio.

While some robo-advisors have minimum account requirements to get started, this is usually a low hurdle to meet. For example, you might only need $500 to get started. Others have no account minimum, meaning you can start investing with just a few extra dollars in your bank account.

Continue reading: Investing for Beginners: Everything the Experts Want You to Know for 2022

What is the difference between a robo advisor and a traditional broker?

A brokerage account is a place where you can manage your investments yourself. Robo-advisors let a computer manage it based on your style and preferences. Most robo-advisors typically charge a low flat fee of around 0.25% per year on your total investment. Online brokers tend to charge more or higher fees.

Robo-advisors are great for automated investing. They use your personal choices and investment approach – including your risk tolerance – to choose how to invest your money and then manage it for you.

These services also offer automatic rebalancing, meaning the robo-advisor will buy or sell assets in your portfolio to maintain the desired level of asset allocation or risk. Some robo-advisors also perform tax losses. That means they dump stocks that aren’t working the hardest for you by reducing your tax liability, and the money that’s kept from paying less tax goes into your investments instead.

Continue reading: 5 investment accounts everyone should have

What do robo advisors invest in?

Robo-advisors typically invest in index funds and exchange-traded funds (ETFs) to keep costs down.

Index funds are mutual funds that track the performance of a specified market benchmark (e.g. an index), such as B. the Standard & Poor’s 500 Index. It is essentially a form of passive investing as your funds follow a preset investment formula. Index funds come in the form of mutual funds and ETFs, the latter being a basket of securities — including stocks, commodities, bonds, or a mix of these — that track an index, sector, commodity, or other asset. ETFs are by far the most common investment vehicle for robo advisors.

Brokers allow you to actively choose between different types of securities, but you have to pay a little more for this privilege. You would also need to be more proactive about your wealth, including identifying and managing the securities in which you wish to invest.

Continue reading: What does it even mean to build wealth in 2022?

Pros and cons of robo advisors

If you know that managing your money is important but aren’t sure where to start, a robo-advisor is a good introduction to investing. But they’re not always the best choice for everyone.


  • To save time. Robo-advisors put your money to work without you behind the wheel. These services save you from searching through online investment advice and ultimately save you time by managing your investments for you.
  • Immediate diversification. While brokerage accounts let you pick your own stocks and other securities, there’s a chance you’re getting too much of a good thing — which means you could also incur a huge loss. Robo-advisors diversify your portfolio through index funds and ETFs, so any loss is negligible. Thanks to rebalancing and tax loss harvesting, you will also dump investments that are not performing well.
  • Minimum Investment Requirements. Depending on which robo-advisor you choose, you may not have a minimum account to get started. If you need something to get you started, it usually costs around $500 (although it varies).
  • Low fees. Because robo-advisers use fewer people than brokerage firms, they can charge lower fees.
  • Easy to use. Most robo-advisors have simple interfaces and apps to view your investments and add funds.
  • Socially Responsible Investing. Some robo-advisors allow you to choose investments that match your values ​​without charging a premium.


  • Limited human interaction. While robo-advisers have solid customer service, they are limited in the help they receive. You don’t always get a chance to get expert advice. When a robo-advisor offers the ability to speak to a financial expert, it usually comes at an additional cost. Most robo-advisors are online-only, which means you don’t have the option to go to a branch if you need to talk to someone about your account.
  • Few stocks. If you want to expand your investment options, you may not have that with a robo-advisor. Most of them invest your money in ETFs, which is great for diversification. But if you want to get into different types of securities, you should look elsewhere. Additionally, some robo-advisors have a limited number of ETFs that they invest in. For example, Vanguard Digital Advisor only invests in four Vanguard ETFs.
  • Not great for everyone. Robo advisors are a good choice for most people, but they aren’t always the right choice for everyone. Depending on your investment strategy, risk appetite, retirement plan, wealth, and where you choose to invest your money, it may not work for you.

where to start

When browsing robo advisors to start investing, ask yourself a few questions before you decide.

  • What are the minimum requirements? Do you need to make a large contribution to get started or maintain a minimum account balance? The lower the qualification threshold, the easier it is to get started.
  • what are the fees Some companies have a flat annual fee, but do the math: A 0.25% fee looks very different for a $10,000 investment than it does for $100,000. Make sure you are happy with what you are sharing.
  • What features are included? While many robo-advisors include automatic rebalancing, not all do, and it’s certainly a feature worth having. Additionally, not all robo-advisors include collecting tax losses, a major benefit of any robo-advisor. Collecting tax losses would not only save you money, but it alone could cover the fees associated with some robo-advisers. For example, Wealthfront states that 96% of their clients more than offset the 0.25% fee with money from tax losses.
  • Are other services included? Some robo-advisors offer additional perks as part of their service. For example, SoFi offers career coaching to all of its members at no additional cost. Ellevest also offers career coaching and online workshops for an additional fee, but members on the most basic plan receive a 20% discount on one-to-one coaching
  • Do you have the opportunity to speak to a human? Many advisors select portfolios based on responses to a set questionnaire, but other circumstances can affect how you invest your money. If you need to speak to someone about your unique situation, does your prospective robo-advisor offer personal financial advice?

There is some leading robo advisors in the game, but not all have the same requirements and offers. Here are a few.

  • Oldest: No minimum account. Monthly membership fees range from $1 to $9. Specially developed for women.
  • Wealthfront: $500 account minimum. 0.25% annual fee. Great for most investors.
  • improvement: No minimum account. 0.25% annual fee. Possibility of professional financial advice at extra cost.
  • Ally: $100 account minimum. No fees. Good for current Ally customers who want to bring their banking and investing under one roof.
  • Acorns: No minimum account. $1-$3 per month to use. Invest your spare change.

Regardless of which robo-advisor you choose, getting started and managing an investment portfolio should be easy. Just make sure you do your homework first to determine the fees you will be paying and find the best robo-advisor to help you achieve your investment goals.

Disclaimer: Information contained in this article, including program features, program fees, and credit card balances available for use in such programs, may change from time to time and is presented without warranty. When you review offers, please check the credit card issuer’s website and read their terms and conditions for the most up-to-date offers and information.

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Chris Barrese

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