What is a robo-advisor?

How a robo-advisor works

1. A questionnaire. The SEC describes it: the service collects your financial goals, investment horizon, income, other assets and risk tolerance through an online questionnaire.
2. A mix. Your answers become a split between stocks and bonds. More stocks means bigger swings.
3. Upkeep. When stocks have risen more than bonds, the service sells some stocks and buys bonds so the split matches the one chosen. This is called rebalancing.

So a robo-advisor does what you could do yourself with a few index funds and a bond fund, with a fixed rule for when to buy and sell. How much contact you get with a person varies; some services offer none beyond technical support.

What it costs

A robo-advisor often charges its own fee on top of the funds'. Here is a made-up example with 0.25% for the service and 0.15% for the funds, on $10,000 growing 7% a year before fees, as in the lesson on fees.

The first year the service costs $25. Over 30 years the difference becomes $5,272, because the fee is taken from everything that has grown. Whether it is worth it depends on whether you would otherwise have saved by the same rules yourself.

Worth knowing first

• The mix rests on your answers. When your life changes, it is often up to you to update them.
• The bond part usually makes the account fall less than the stock market in a crash, and rise less too. How bonds move drives that part.
• Robo-advisors are registered investment advisers. The SEC suggests checking a service's registration and record on Investor.gov before you sign up.

Source

• US Securities and Exchange Commission, Investor Bulletin: Robo-Advisers, read on 5 November 2026.