Home Strategies Research Articles FAQ Team Login GET STARTED What Is a Robo-Advisor? A robo-advisor is a digital investment tool that automates portfolio management. Your target asset allocation is determined by your current financial situation and your future goals. Investing·Oct 20·7min Table of contents Understanding automated investing How do robo-advisors work? Features of robo-advisors How much do robo-advisors cost? Is a robo-advisor right for you? Choosing the best robo-advisor Share this    Many people put off investing because they’re unfamiliar or uncomfortable making decisions. And for many, hiring a financial advisor is either out of reach due to high account minimums or over-the-top fees. That’s where robo-advisors come in: they make investing more accessible to investors of all kinds. Robo-investing offers a hands-off approach that relies on computer programs and algorithms to maximize returns while saving investors costly management fees. Understanding automated investing A robo-advisor is a digital investment tool that automates portfolio management. Your target asset allocation is determined by your current financial situation and your future goals. Algorithms are built by economists and financial advisors to tailor investment decisions to an individual’s financial status and future goals. The entire process is handled either online with a computer or on a mobile app. You can also select different investment accounts based on your needs, just as you would with a traditional financial advisor. In addition to taxable investment accounts, most robo-advisors also offer tax-advantaged accounts such as individual retirement accounts, or IRAs. Robo-investments do not include day trading. You can’t buy individual stocks, since robo-advisor algorithms are based on purchasing diversified asset classes, usually exchange-traded and index funds, that help you reach certain goals by a specific date. Buying and selling individual stocks is volatile and difficult to automate, so you’ll need a separate brokerage account if you want to invest in specific companies. Robo-advisors are regulated by the U.S. Securities and Exchange Commission (SEC) just like any other type of financial advisor. The robo-advisor must register with the SEC, and you can research their disclosures, any potential enforcement actions, and other details online. How do robo-advisors work? The algorithms built into a robo-advisor are based on a set of rules related to asset prices, timing, and other variables. When researching different robo-advisors, look for data on their algorithmic formulas to get an idea of how they created their models. You can also research robo-advisor returns to compare performance. Fill out a questionnaire When you first sign up for a robo-advisor, you often begin the process by filling out a questionnaire about your finances and future goals. You’ll identify what you’re saving for, such as retirement, education, or investing. It digs deeper into your timeline, contribution amount, risk tolerance, and other details to create a detailed financial plan to help you meet your goals. Review your personalized investment strategy Once you complete the questionnaire, the robo-advisor makes a recommendation of portfolio asset allocations. You may see a variety of options depending on your own risk tolerance. Some portfolios may be more aggressive, while others may be more conservative (and consequently, less risky). Set up automatic contributions After selecting a portfolio, you can set up automated contributions to your robo-advisor account. That way you won’t forget about transferring funds into your investment account. Watch your portfolio rebalance From here, the robo-advisor takes over. Unlike a financial advisor, portfolio rebalancing is automated so your asset allocation always meets your target. Some traditional advisors only rebalance at set intervals, such as quarterly, which could leave your portfolio out of balance for weeks or even months. Update your financial goals as life changes Whenever your financial goals change, you can update your details so that your portfolio recommendations are working toward those new goals. Maybe you have a baby and want to add an education fund. Or maybe you want to be more aggressive with your savings so you can retire 10 years early. Receive daily business and financial news Features of robo-advisors Here are common robo-advisor features to compare before you choose one, keeping in mind that not all operate the same way. 1. Low fees Most robo-advisors charge an annual fee of about 0.25% that’s calculated as a percentage of your managed assets, though fees can be higher if you want additional services. Some robo-advisors also charge a flat monthly rate, similar to a subscription fee. 2. Automatic rebalancing Robo-advisors are known for helping you set it and forget it. The reason for this is their automatic account rebalancing features. When you choose a recommended portfolio designed to meet your investment goals, your contributions are split up accordingly in order to be properly diversified. As markets fluctuate, the percentage of your allocations in various asset classes can change. Automatic rebalancing regularly buys and sells to keep your portfolio in check. For example, if you select a portfolio that’s 60% stocks and 40% bonds, the robo-advisor will sell stocks if equity markets rise a lot and buy bonds. 3. Low account minimums Most robo-advisors have a low account minimum—and some don’t have any. No matter how much money you have to start investing, robo-advisors make it easy to get started. You can open an account with just a few dollars, then contribute as much as you want each month. 4. Tax-loss harvesting Tax-loss harvesting is an investment strategy that helps you offset your capital gains. Some financial advisors may offer a manual version of this strategy, but some robo-advisors build it directly into their platforms. When an asset is sold and gains are realized (resulting in capital gains subject to tax), the robo-advisor then sells another asset at a loss to offset those gains. It will replace the losing asset with something similar to keep your asset allocation in balance, all while remaining in compliance with IRS regulations. 5. Financial planning The best robo-advisors bake in financial planning models so you can test different decisions and see the possible result. You may also have access to in-depth research about markets and the company’s investment strategy. How much do robo-advisors cost? Many robo-advisors charge an annual percentage based on your assets under management (AUM). For no-frills service and lower balances, robo-advisor fees start at about 0.25% or lower. As the services expand and your assets grow, that fee can increase. Become a Titan investor today. Create an account with us in two minutes. JOIN NOW Table of contents Understanding automated investing How do robo-advisors work? Features of robo-advisors How much do robo-advisors cost? Is a robo-advisor right for you? Choosing the best robo-advisor Share this    Is a robo-advisor right for you? There are robo-advisor pros and cons to consider before deciding if it’s right for you. Pros Low investment minimums: If you want to start investing but don’t have tens of thousands of dollars, a robo-advisor could be a great fit. Some have no minimum requirement for opening an account. Hands-off investing: Robo-advisors don’t give you a lot of control over your portfolio, which is a plus for many people. What they do offer is automated guidance on your investment strategy. Low fees: You’ll usually spend a lot less on management fees when you opt for a robo-advisor. It’s always important to include all of your portfolio fees when calculating your annual returns; otherwise you’ll unnecessarily lose a lot of compounded growth in the coming years. Tech-friendly: A lot of big established investment firms have archaic online interfaces. Robo-advisors are known for being user-friendly, with seamless integration between their online and mobile app platforms. Making deposits, withdrawals, or adjusting your asset allocation can be as easy as pushing a virtual button or turning a dial. Cons No in-person contact: The best way to get face-to-face personalized advice is to work with a financial advisor. Some robo-advisors do offer access to personal advisors, but this is typically as an add-on service that can increase costs.‍ No option to buy individual stocks: Have your heart set on loading up on a company you truly believe in? You’ll need a separate brokerage account for that, because robo-advisors don’t usually offer the ability to buy or sell specific stocks. Choosing the best robo-advisor If the convenience of a robo-advisor sounds appealing to you, start reviewing different services to find the best fit. Each one offers different types of accounts, from taxable investment accounts to a range of retirement options, and even college savings funds. Next, vet the historical performance of each service. Do they have a track record of beating the market? The allure of robo-advisors is that they handle your investments for you. But you still need to do your due diligence to find the best option. Receive daily business and financial news If you’re looking for a long-term investment strategy, we’ve got you covered. Titan’s award-winning, expert-managed portfolios offer investors of all income levels the potential to grow their wealth over the long-term. Why wait? Sign-up takes less than five minutes. 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Please see Titan’s Legal Page for additional important information.‍ Titan Partner Become the smartest investor you've ever been. Titan's editorial partners have cut their teeth at The New York Times, Wall Street Journal, Time, Inc., and Bloomberg. Keep reading How to Invest in Index Funds: A Beginner’s Guide An index fund is a type of fund that tries to mirror the performance of a benchmark market index, such as the S&P 500 stock market index. Investors can use a brokerage or retirement account to purchase exchange-traded funds (ETFs) or mutual funds that track indexes. Investing·Nov 26·12min What Are Inverse ETFs and How Do They Work? An inverse ETF, often known as a bear or short ETF, is an exchange-traded fund designed to profit from a market decline. These short-term, publicly traded investments are utilized by investors who believe that a particular market or individual security will lose value in the near future. Investing·Nov 26·12min What Is an Index Fund & How Does It Work? Index mutual funds and ETFs give investors a way to invest in different indexes. Investors can look for funds that track international markets, domestic indexes, specific sectors, or meet other criteria. Investing·Nov 26·12min Guide to Cryptocurrency Taxes The days when cryptocurrencies were considered untamable assets operating outside the bounds of the financial system are gone. Having defined Bitcoin and other digital tokens as property, the IRS treats them as taxable assets like stocks, real estate, and other non-employment income. Crypto·Nov 25·12min How Long Will My Retirement Savings Last? Saving early for retirement is important for many investors, because sources like Social Security usually aren’t close to enough. Investors can consider their current standard of living and note that experts say most people need 80% of that pre-retirement income. Retirement·Nov 25·12min What Is Spread Trading? Spread trading is a strategy of gauging how the price difference between two securities or contracts—the spread—will change. A spread trader is focused more on the price difference and less on the prices themselves. Investing·Nov 25·12min How to Build Wealth in Your 30s Wondering how to build wealth in your 30s? Here are 10 steps that may contribute to lasting wealth over time. Personal Finance·Nov 16·12min How to Retire Early: 5 Steps to Take Retiring early does require some solid financial planning, such as determining how to live in retirement, creating a retirement budget, and altering spending. Those who want to retire early need to start planning as early as possible. 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