Robo advisors: Affordable, professional investment management

As more investors enlist the help of robo advisors to automate day-to-day investing, it's important to understand how they work and what they offer before choosing one for your finances.

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In today's fast-paced world, many people don't have time to research investments, constantly monitor or analyze the markets, and manage their portfolios each day. Others may want to pay a professional to handle some financial decisions for them, but still want to be able to monitor their accounts online 24/7 without having to sit down in person with a traditional advisor. This is where robo advisors can help.

What's a robo advisor?

A robo advisor is an affordable digital financial service that uses technology to help automate investing based on information investors provide about themselves and their financial situation. "Robo" refers to these services being almost completely digital, and that computers, smartphones, or tablets are used to access and interact with your accounts. "Advisor" speaks to the investment advisors that offer digital advice and account management services, often for a lower fee than traditional investment advisory services.

How do robo advisors work?

Robo advisors use various pieces of information about an investor to suggest an investment strategy. In most cases, you'll first be asked some questions online or through an app about yourself and your current financial situation. A robo advisor then uses that information to suggest an investment strategy for your financial goals. Investment strategies can include a mix of different types of investments and many robo advisors include account rebalancing services to help your investments stay in line with your financial goals and preferences.

What's a hybrid robo advisor?

A hybrid robo advisor is a service that typically combines a professionally managed account (through the help of a robo advisory service) with access to financial guidance or planning. For many hybrid robo advisors, the guidance and planning services are available through phone or video calls with human financial advisors. By meeting over the phone and through computer or app-based video conferencing, these services can come at a lower cost than meeting in person with a traditional financial advisor.

Can a robo advisor help manage some of the risk that comes with investing?

All investing involves risk and the potential to lose money, due to inevitable fluctuations in the markets that happen over time. Robo advisors can help manage some of that risk by helping you build a diversified investment portfolio, monitor the markets, and rebalance your investments. Using their technology, robo advisors can manage and make adjustments to your account to help your portfolio and investing goals stay on track.

That being said, not all robo advisory services are alike and some may not be the right fit for every investor. When choosing a robo advisor for your investments, it’s important to research and compare options to find a service that’s a good match for your financial goals and preferences. Something to also consider is if you’re comfortable relying on a digital investment advisory service to help manage your investments.

How do I know if a robo advisor or hybrid robo advisor is right for me?

If you agree with the statements below, a robo advisor might be right for your current situation:
  • I'm looking for an affordable, professionally managed account so that my money is invested instead of just in a savings account.
  • I'm willing to pay a fee for someone to make investment decisions for me.
  • I want to be able to access and interact with my account online, so I can track the progress of my investments whenever I want.
  • I'm comfortable having someone else automatically rebalance my portfolio (when needed) so that it stays in line with my investment goals.
  • I don't need direct access to a dedicated professional financial advisor to ask questions, discuss my investments, or plan for the future.

If you think you’d benefit from having access to a professional financial advisor through phone or video calls, you may want to consider a hybrid robo advisor for help with investing and basic financial planning.

Next steps

Invest with a robo advisor

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