Automated Investing

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor asks questions about your financial situation and future goals through an online survey; it then uses the data to offer advice and automatically invest for you.

There is a range of account minimums for robo-advisors. While there are some
robo-advisors that have no minimum, like Betterment, SoFi Automated investing, and Blooom, some of these allow you to open the account but won’t fully invest your money in the model portfolio until a threshold of cash is reached. Aside from the small number of robo-advisors that require $0 to open an account, account minimums range from $10 to $100,000. In general terms, you should try to have $100 to invest in even the no-account-minimum robo-advisors, as that will usually ensure the money goes into the market. From there, the key is contributing more investment dollars at regular intervals.

Robo-advisors typically charge less than 0.50% of assets under management, which is far below the traditional asset management fees charged by human advisors. Premium offerings from the platforms that are split into basic and premium will be closer to that 0.50% line. Only Personal Capital exceeds this line, but it is designed specifically for high net worth clients and diversifies and manages their portfolio with direct asset purchases rather than simply using ETFs as a proxy. This feature may well justify the higher fee for wealthy investors looking to automate their portfolios. 

Although some of the robo-advisors we reviewed do offer some funds designed to
outperform the market, the vast majority of robo-advisors are designed to match the overall returns of the market. Many of the ETFs that robo-advisors use to develop a balanced portfolio either are or have elements of index-tracking funds. Depending on the robo-advisor, your funds may also be diversified globally as well as by asset class. This means portions of the portfolio's holdings could outperform or underperform your domestic stock market, when the idea is to have the portfolio keeping pace with the overall market rather than outperforming or underperforming it.

Yes, you can lose money with robo-advisors, particularly with rebalancing costs, fees, and tax-loss harvesting.