Robo-Advisor

A robo-advisor is a service where an algorithm, rather than a person, allocates and manages your investments according to your profile. You answer a questionnaire about your age, goals, and tolerance for loss, and it builds a portfolio of low-cost ETFs with a stock and bond mix matched to those answers.

Its greatest strength is handling two things people do badly: diversification and rebalancing. When stocks run up past their target weight, it sells some and buys bonds to restore the original mix. That means selling what rose and buying what fell, which is emotionally the hardest thing for a human to do. An algorithm simply follows the rule.

Cost is another advantage. Fees run below human-managed wealth services and minimums are low. Just be aware that the expense ratios of the underlying ETFs sit on top of the robo-advisor's own fee, so compare on the combined cost of both layers.

The limits are equally clear. Because it follows fixed rules, it will not change its mind during a market shock, and its goal was never to beat the market but to hold an allocation suited to you. Expecting a machine that earns well on its own leads to disappointment; seeing it as a device that keeps the rules on your behalf is accurate. Answering the questionnaire honestly is what makes the result fit you.