Robo-advisors are popular because they're cheap, accessible, and have low minimum investment requirements.
Despite what you may think, robo-advisors aren't like the robots in sci-fi movies.
The short version: They use computerized algorithms too complex for us to understand; otherwise, we wouldn’t need to use such services.
The long version: Robo-advisors use the same technology as human wealth managers and financial advisors. This technology utilises passive indexing strategies, optimised with modern portfolio theory (MPT) (MPT).
In general, you can expect to pay between 0.25 and 0.50 percent of assets under management annually. We're talking pennies.
What Do Robo-Advisors Do?Basic InvestingJust like a real-life financial advisor, robo-advisors will typically target specific mutual funds or ETFs, rather than individual stocks, in an effort to grow your money over time.
Portfolio RebalancingAn important component of robo-advisors is that they offer portfolio rebalancing. Some do this automatically (in real time) while others do it at set time periods, like once a quarter.
Tax-Loss HarvestingTax-loss harvesting, a type of rebalancing, helps investors avoid capital gains taxes.Financial Planning ToolsMost robo-advisors offer a variety of financial planning tools. Common retirement calculators.