A robo-advisor builds and manages a diversified investment portfolio automatically — rebalancing, tax-loss harvesting, dividend reinvestment — for a fraction of what a human advisor charges. For most investors under 50, it's the right choice.
How Robo-Advisors Work
You answer a risk questionnaire (age, goal, timeline, risk tolerance). The algorithm builds a portfolio of low-cost index ETFs matching your profile. It rebalances automatically when allocations drift. Some add tax-loss harvesting, which sells losers to offset gains for tax efficiency.
Betterment
- Tax-loss harvesting on all accounts
- Socially responsible portfolios available
- Cash management account at 5%+ APY
- No minimum to start
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Wealthfront
- Daily tax-loss harvesting
- Stock-level TLH on portfolios $100k+
- 529 college savings accounts
- Risk Parity Fund option
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Free Options Worth Knowing
Schwab Intelligent Portfolios — Zero advisory fee. $5,000 minimum. Holds more cash than competitors (their revenue model). Fine for taxable accounts if you have the minimum.
Fidelity Go — Free below $25,000, 0.35% above. Uses Fidelity's own zero-expense-ratio funds.
Who Should Use a Robo-Advisor
Perfect fit: investors who want to set-and-forget, don't enjoy managing individual stocks, have under $500K (above this, tax complexity warrants a fiduciary advisor), or are just starting out. The automation removes the behavioral mistakes that cost most DIY investors 1-2% annually — panic selling, chasing performance, forgetting to rebalance.