What is a robo-advisor?
Learn what is a robo-advisor. Explore automation limits, hidden risks like opacity and passive indexing, and why explainable AI + SEC data beats set-it-and-forget-it strategies in 2026 markets.
What is a robo-advisor, and how does automated investing work?
Robo-advisors build automated ETF portfolios from risk questionnaires, handling rebalancing and taxes at 0.25% fees—accessible baseline for passive strategies.
What Are Robo-Advisors? The Basics
Robo-advisors automate portfolio management using algorithms. Complete a risk survey, get instant ETF diversification, and let automation handle maintenance. Fees average 0.25% vs. 1%+ for human advisors.
How They Operate
Risk questionnaire → investor profile
ETF portfolio construction
Auto rebalancing + tax harvesting
Goal tracking dashboard
Core Features
Feature | Purpose |
|---|---|
Rebalancing | Maintains target allocation |
Tax Harvesting | Reduces taxable gains |
Low Fees | 0.25-0.50% AUM |
$0 Minimums | Broad accessibility |
Robo-advisors automate cheap ETF indexing (0.25% fees, $0 minimums) but trap DIY investors with opacity, passivity, and missed alpha. Better for pure passives; upgrade to explainable AI for stock-level control.
FAQ
Q: Are robo-advisors safe?
A: Generally yes for indexing, but algo herding amplifies crashes and lacks explainability.
Q: Can I pick individual stocks in robo-advisors?
A: Rarely—most stick to ETFs. No customization for conviction plays.
Q: What's better than robo-advisors for active investing?
A: Tools blending market and SEC data + explainable AI, like trade & tonic, for auditable stock signals.