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If you’ve ever wished for a robot to clean your house or walk your dog, you’ll likely understand the appeal of a robo-advisor. These services don’t do windows or pet-sit, but what they offer is arguably more valuable: a relatively hands-off way to invest.
Robo-advisors — also known as automated investing services or online advisors — use computer algorithms and advanced software to build and manage your investment portfolio. Services range from automatic rebalancing to tax optimization, and require little to no human interaction — but many providers have human advisors available for questions.
Traditional services often require high balances; robo-advisors typically have low or no minimum requirement. Because of that and their low costs, robo-advisors let you get started investing quickly — in many cases, within a matter of minutes.
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Robo-advisors are much cheaper than an-person human financial advisor. Most companies charge between 0.25% and 0.50% as an annual management fee, though there are even free options like .
As with many other financial advisors, fees are paid as a percentage of your assets under the robo-advisor’s care. For an account balance of $10,000, you might pay as little as $25 a year. The fee typically is swept from your account, prorated and charged monthly or quarterly.
You won’t usually pay transaction fees with a robo-advisor. In a standard brokerage account, you might pay a commission to buy or sell investments, both during a rebalancing of your portfolio and when you deposit or withdraw money. Robo-advisors frequently waive these charges.
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When considering whether a robo-advisor is right for you, take into account the following:
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The formula for many advisors is the same: automate so it can be done by a computer at a lower cost. At most robo-advisors, you can expect:
If you want or need more comprehensive financial planning, or you're hesitant to leave your portfolio in the hands of a computer, you might be more interested in online financial planning services.
These companies operate as online financial advisors, and they're sort of a robo-advisor, traditional advisor hybrid: You'll receive unlimited access to a team of financial planners (or in many cases, your own dedicated financial advisor), but you'll meet virtually via phone or video rather than in-person. This model means you get human oversight and interaction at a lower cost than a traditional financial .
You can expect the cost and minimum investment requirements of online financial advisors to increase with the level of human involvement, certification (such as access to a ) and personalization:
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These hybrid services can be a good option because they at least partially fill in the major gap left by strictly digital robo-advisors: Some investors want, and need, human interaction.