Robo-Advisor
An automated online investment platform that uses algorithms to build and manage a diversified portfolio based on the investor's goals and risk tolerance.
What is Robo-Advisor?
A robo-advisor is an automated digital investment service that uses algorithms to create, manage, and rebalance a diversified investment portfolio — typically using low-cost index funds or ETFs — based on a client's stated financial goals, time horizon, and risk tolerance. Robo-advisors dramatically lowered the cost of professional-style portfolio management: fees typically run 0.25%–0.50% annually versus 1%–2% for traditional advisors. Major providers include Betterment, Wealthfront, Vanguard Digital Advisor, and Schwab Intelligent Portfolios. Features vary but commonly include automatic rebalancing, tax-loss harvesting, and dividend reinvestment. Robo-advisors handle trillions of dollars in assets and have made diversified investing accessible to investors with small account balances.
Example
Betterment, founded in 2010 as one of the first robo-advisors, allows investors to start with $10, charges 0.25% annually, automatically builds an ETF portfolio matched to the investor's goal, and rebalances continuously. A traditional human financial advisor typically charges 1%+ and requires minimum investments of $100,000+. By 2024, Betterment managed over $45 billion in assets.
Source: Betterment — How We Invest