What Is a Robo-Advisor?
A robo-advisor is an app or website that invests your money automatically, based on a short quiz about your goals and risk tolerance.
How it works
You answer questions about your age, goals and comfort with risk. The robo-advisor picks an asset allocation, usually built from low-cost ETFs. It then rebalances for you and reinvests dividends.
What it costs
Often around 0.25% a year on top of the funds' own expense ratios. That is far cheaper than a human advisor, who often charges around 1%.
Pros and cons
- Pros: cheap, simple, automatic, low minimums.
- Cons: little personal advice, cookie-cutter portfolios, and you could do much the same yourself with one or two index funds.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Asset allocationHow you split money between stocks, bonds and cash.
RebalancingResetting your mix back to plan.
ETFOne fund that holds many stocks at once.
Expense ratioThe yearly fee a fund charges.
Passive vs active investingCopying the market versus trying to beat it.
Risk toleranceHow much ups and downs you can handle.