What is a Robo-Advisor? - dummies

By Matt Krantz

Robots are entering the financial world. So-called Robo-Advisors are essentially online tools programmed to pick the perfect portfolio for you. You log in to the Robo-Advisor, tell the computer how much risk you can stomach and your financial goals, and the algorithm spits out a recipe of what exchange-traded funds (ETFs) you should own. Some Robo-Advisors can even buy the ETFs for you.

Robo-Advisors are trying to serve investors who have pretty simple investment needs but are still looking for help. Robo-Advisors charge fees, but they’re a fraction of what it would cost to hire a human financial advisor. Robo-Advisors, though, aren’t free; you can still save yourself tons of money, especially over the long-term, if you pick your own ETFs and buy them yourself.

The term “Robo-Advisor” is more applicable to some of the providers than others, because with some of these services you really don’t have to do much more than sign up and put in money. Many younger investors with simpler portfolio needs have gravitated to these services because they’re quick, simple, and online.