Robo-Advisors: Should You Use One? Pros & Cons (+ tips)

Robo-advisors like Betterment and Wealthfront have exploded in popularity by offering automated investment management at lower fees than traditional financial advisors. These platforms promise a simple, hands-off approach to growing your wealth—but is trusting an algorithm with your money really a smart move?

What the Heck Are Robo-Advisors Anyway?

Robo-advisors are automated investment platforms that use sophisticated algorithms to manage your portfolio instead of relying on a human financial advisor. When you sign up for such a platform, you’ll answer questions about your age, financial goals, risk tolerance, and timeline. Based on your answers, the algorithm constructs a diversified portfolio—usually made up of low-cost exchange-traded funds (ETFs)—designed to match your risk profile.

By eliminating high-cost advisors, complicated jargon, and the need for constant decision-making, robo-advisors have streamlined investing for the average person. You don’t need to study market trends or rebalance your portfolio—it all happens behind the scenes. These platforms have essentially taken wealth management services once reserved for high-net-worth individuals and made them accessible to anyone with a smartphone and a few dollars to invest.

The Pros of Robo-Advisors

This section dives into the biggest advantages of robo-advisors and why they’ve become a go-to option for modern investors.

1. Ridiculous ease of use

One of the biggest reasons people flock to robo-advisors is their simplicity. Sign up, answer a few questions, deposit money, and let the algorithm handle the rest. There’s no need to research stocks, time the market, or manually rebalance your portfolio. Whether you’re a complete beginner or someone who just wants a hands-off approach, robo-advisors take the guesswork out of investing.

2. Fees that won’t make you cry

Traditional financial advisors typically charge 1–2% of your portfolio annually, but robo-advisors charge far less—usually between 0.25–0.50%. On a $10,000 investment, that’s the difference between paying $100–$200 per year with a traditional advisor versus just $25–$50 with a robo-advisor. While this might seem small, those savings add up over time, leaving more of your money to compound and grow.

3. No “Sorry, you’re too poor” minimums

Many financial advisors won’t even take your call unless you have $100,000 or more to invest. Robo-advisors, on the other hand, welcome beginners, with many allowing you to start with as little as $0-$500. This makes them an attractive option for anyone just starting their investment journey.

4. Set-it-and-forget-it automation

Robo-advisors don’t just invest your money—they handle all the behind-the-scenes work, too. They automatically rebalance your portfolio, reinvest dividends, and, in some cases, use tax-loss harvesting to reduce your tax bill. This means your investments stay optimized without you having to lift a finger.

5. Perfect convenience for digital natives

If you’re under 40, you probably prefer managing your finances on your phone rather than sitting in an office with a financial advisor in a suit. Robo-advisors were built for tech-savvy, upwardly mobile investors who value efficiency and transparency. Everything from deposits to performance tracking can be done in an app, making investing as easy as ordering food delivery.

Drawbacks of Robo-Advisors

While robo-advisors have plenty of perks, they aren’t perfect. There are some significant downsides that could make them less appealing, depending on your situation.

1. The venture capital trap

Many robo-advisors are venture-backed startups, which means they need to grow rapidly to satisfy investors. This creates two problems: first, they need massive scale to make a profit on their low fees, meaning they’ll keep pushing for more customers. Second, there’s pressure to introduce higher-fee products over time to boost revenue.

Unlike Vanguard, which built its low-cost model over decades, newer robo-advisors face an uphill battle to maintain efficiency at scale.

2. The “one-size-fits-most” approach

Robo-advisors work best for the average investor. However, if you have a more complex financial situation—like business ownership, large inheritances, or complicated tax needs—their cookie-cutter portfolios might not be optimal. You’ll answer a few basic questions and get a portfolio that fits most people, but not necessarily you.

3. The tax-loss harvesting hype

Tax-loss harvesting is often marketed as a major selling point, but in reality, it’s a minor perk. While it can reduce your taxable gains in certain situations, the savings aren’t massive for most investors. It’s a nice bonus but hardly a game-changer.

4. The limited investment options

Robo-advisors typically stick to a curated list of ETFs, which means you won’t have the flexibility to invest in individual stocks, real estate, or alternative assets. If you want more control over where your money goes, you might find their offerings too restrictive.

5. The lack of full financial insight

Since robo-advisors only manage the money you invest with them, they don’t always factor in your full financial picture—such as debts, employer stock plans, or real estate holdings—unless you manually link all your accounts. This can lead to recommendations that don’t fully align with your overall financial situation.

Are Robo-Advisors Worth the Money?

So, where do I stand on robo-advisors? They can be a great choice for many people, especially beginners who want a hands-off approach. But personally, I don’t think they’re always worth the extra cost.

I’ve chosen Vanguard for my own investments because the most important factor in building wealth is sticking to a low-cost, long-term strategy. Whether you achieve that through a robo-advisor or through a low-cost human provider matters less than actually committing to smart, fee-conscious investing.

Robo-advisors are ideal for…

• Beginners who want an easy, automated way to invest
• People who know they’ll never rebalance their own portfolios
• Investors who want a completely hands-off approach
• Those with simple financial situations who don’t need custom advice

They’re not ideal for…

• People with complex financial needs (business owners, high-net-worth investors, etc.)
• Investors who want control over individual stocks or assets
• Those who need in-depth financial planning beyond investments
• People who enjoy managing their own portfolio and minimizing fees

How to Choose the Right Robo-Advisor (If You Decide to Use One)

If you’ve decided a robo-advisor is right for you, don’t overcomplicate the decision. Here’s what actually matters:

1. Fees matter—like, A LOT

One of the most overlooked factors when choosing a robo-advisor is the fee structure—but it can have a massive long-term impact. Even a small difference in annual fees, like 0.25% versus 0.50%, can add up to thousands of dollars over the course of a few decades. That’s money that could’ve been compounding in your favor.

Don’t just look at the advertised management fee. Dig a little deeper into the expense ratios of the ETFs they invest your money in, because those come out of your returns too. The best robo-advisors keep both low, giving you more bang for your buck.

2. Account minimums

Not all robo-advisors are created equal when it comes to how much money you need to get started. Some platforms let you open an account with as little as $0 and invest automatically as you deposit. Others might require a minimum balance of $500, $1,000, or even more.

If you’re starting small or just testing the waters, you’ll want to avoid platforms that lock you out with high minimums. Look for one that fits your current budget—there’s no need to overextend yourself just to open an account.

3. There are several account types available

Robo-advisors aren’t just for one-size-fits-all investing. Many offer a variety of account types, so you can align your investments with your financial goals.

• Individual taxable accounts are the standard choice for general investing. You’ll pay taxes on dividends, interest, and capital gains, but there’s no limit on how much you can contribute. 
• Joint accounts allow you and a partner to manage investments together, making them a common option for couples or shared financial goals. 
• Traditional IRAs offer tax-deferred growth, and depending on your income, contributions might be tax-deductible—great if you want to lower your tax bill today. 
• Roth IRAs grow tax-free, and withdrawals in retirement are also tax-free, which is ideal if you expect to be in a higher tax bracket down the road. 
• SEP IRAs are designed for self-employed individuals and small business owners, offering high contribution limits and tax advantages. 
• 529 plans help you save for a child’s education, with tax-free withdrawals for qualified expenses—a great tool if college is on your horizon.

Before choosing a robo-advisor, check that they support the account type you need.

4. Have human support for when you need it

While robo-advisors are built to automate your investing, that doesn’t mean you’re completely on your own. Some platforms offer access to real human financial advisors, either for an additional fee or once your balance hits a certain threshold.

If you’re the type of person who values a second opinion—or just likes having someone to call when markets get rough—a hybrid model might be worth the extra cost. It gives you the convenience of automation with the reassurance of human support when it counts.

5. Extra features that matter to YOU

Beyond the basics, robo-advisors often come with bonus features that can make a big difference depending on your goals and values.

Some offer socially responsible investing (SRI) options if you want your money to align with your ethics. Others provide cash management accounts, goal-based planning tools, or even educational resources to help you grow as an investor.

Think about what features are most important to you, and don’t settle for a platform that doesn’t offer them. The best robo-advisor is the one that fits not just your finances—but your life.

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