What Is Robo-Investing? – The Ultimate Guide to Automated Investing

Jeremy BiberdorfBy: Jeremy Biberdorf

April 28, 2022April 28, 2022

Online investment platforms bring a level of convenience and control to investors. The traditional financial advisors we turn to for guidance can be pricey, and they take a cut of your profit. What investment apps provide is access to an investment robot, or robo-advisor, that basically does the job of its more costly human counterparts.

Robo-investors haven’t ​​been around for as long as human financial advisors, so you may wonder what they are, what they do, and if it’s smart to trust them with your hard-earned cash. We’ll dive into robo-trading and investing in detail to answer these questions.

What Is Robo-Investing

Robo-advisors definition: Robo-advisors are AI online automated investment services that make financial decisions based on algorithms and market trends.

A robo-investment platform is something that can help you build a diverse profile and provide transparency and control over your assets. Robo-advisors provide an array of useful investment services, including tax-loss harvesting and automatic rebalancing.

You do not need to interact with or direct the robo-advisor, all you have to do is input investment parameters such as your risk tolerance, and the AI will do the rest. These AI advisors are a great option for passive and hands-off investors who just want to set it and forget it.

What Is a Robo-Advisor and What Does a Robo-Advisor Do?

So, what is a robo-advisor really? A robo-advisor is just a digital advisor that provides financial advice (should you ask for it) in very basic terms and manages your assets. It makes decisions on your behalf, following the criteria you have outlined, and does not need human intervention.

Robo-advisor platforms are not completely devoid of human interaction, as many of them offer in-person advisors and supplemental direction from humans that improve the robot advisor’s services.

How Do Robo-Advisors Work?

Simply put, robo-advisors are automated and follow algorithms to make investments. They base everything off of a form you fill out with information about your goals and risk tolerance. The robo-advisors then suggest profiles that best match your parameters (most of which are very diverse), and you can take your pick.

Types of Robo-Advisors

Robo-advisors can be categorized into two subcategories – simplistic and comprehensive. There are a few ways to gauge which one the robo-advisor you’re looking at belongs to. They both essentially cover the same features and purposes, but as the name suggests, the variance between simplistic and comprehensive robo-advisors is the depth.

Simplistic Robo-Advisors

Simplistic robo-advisors are what we mentioned above; investors answer a simple questionnaire detailing their financial goals and risk tolerance, among other things and the AI compiles a suitable profile and comes up with the best approach.

Comprehensive Robo-Advisors

Comprehensive robo-advisors take a deeper dive into each investor and don’t stop at the simple questionnaire form. These advisors take your financial situation, liabilities, and even your spending habits to craft your investment profile. It constantly updates its approach to keep up with changes you make in your life.

Top Features of Robo-Advisors

Why not just go for regular in-person advisors if you have the money? Is a robo-advisor investment platform a good option? We’ll help you answer these questions by breaking down what a robo-advisor can bring to the table.

Affordable Prices

The biggest pro for robo brokerage services is the low fees. Most robo-advisors take less than 1% in fees, while human advisors can take over 2% at the very least. You then have another small cost – expense ratios. Expense ratios are negligible when you look at the big picture with robo-advisors, and you also save on trade commissions with AI advisors.

Automatic Rebalancing

What is automatic rebalancing? It is the robo-advisor’s ability to allocate money as it sees fit. It may seem scary for something digital to have this much control over your investment profile, but let us clarify.

The advisor does not move your money in and out of the account, but rather between investments. Depending on what’s happening in the market, it may make sense to move money from one ETF (exchange-traded fund) to another to balance your profile and keep it on track to achieve your financial goals.

Automatic rebalancing is a very helpful feature that you do not need to oversee as the robo-advisor does it for you automatically, so you don’t have to worry – just monitor its moves from time to time.

Access to Human Advisors – They Are Still an Option

The whole point of suggesting robo-advisors is to eliminate the cons of human advisors. However, it may still sometimes make sense to talk to a real person if you have questions or concerns. There are many platforms that provide human aid (sometimes for an extra cost).

Robo-advisors are immune from human bias when making investment decisions, as emotions are not a part of their concerns. However, it’s sometimes beneficial to have that human element.

If something unexpected happens in life or if you have very high-value assets, getting a second opinion from a person who can understand your situation and identify the best solution is absolutely necessary.

Low Minimums

A lot of people without a specific account minimum can’t get into certain investments, but this is less of a case for robo-advisors. Robo-advising platforms are known to have much lower account minimums, which means a lower threshold for beginner investors or ones without much capital. There are even some that have a $0 account minimum, and you can start investing with just $1, which sounds a lot better than platforms such as Vanguard Personal Advisor Services, which has a $50,000 minimum.

Socially Responsible Investment Options (SRIs)

The population is becoming more eco-conscious, and robo-advisors offer an avenue into socially responsible investments (SRIs). You can choose or direct the robo-investor to only consider eco-friendly funds, which means the companies it picks have a positive social impact. There are plenty of platforms that offer SRIs, so if this is something important to you, robo-investing makes it possible.

Tax-Loss Harvesting

Tax-loss harvesting, like automatic rebalancing, is a feature that is very helpful for hands-off investors. What the robo-advisor will do is sell off certain investments that have decreased in value in order to help you save money come tax season. Don’t worry; it may seem counterintuitive to sell in order to save because investments eventually bounce back. But the feature of tax-loss harvesting doesn’t stop there. After the robo-advisor sells off the investment that is losing you money, it will purchase a similar one (one that makes more sense and won’t lose you as much money at the time), so you still have your finger in the jar if the old investment type does increase again and you’re still making money.

Profile Diversity

Lastly, robo-advisors provide a wide range of investments to create a very diverse investment profile. Diversification minimizes risk because all your eggs aren’t in one basket. They also offer a variety of account types, from savings to retirement accounts. One of the first steps to opening an account on robo-advisor platforms is to choose the type of account(s) you want to open up.

Are Financial Robo-Advisors Right for You?

We root for robo-investing and believe that it’s a great starting point for beginners and is also a great supplementation for experienced investors and traders who want more diversification or a more hands-off avenue. Are these AI advisors right for you? We’ll put it into perspective.

Pros and Cons of Robo-Investing


  • They’re so easy

As long as you have a smart device, computer, and internet connection, then you can sign up for a robo-advisor account. You may not even need cash to get started! Since a large part of robo-advisors’ target market is beginner investors, they are designed to be extremely straightforward and intuitive. This means there’s a very small learning curve if any.

  • Many Useful Features and Services

Developers and financial institutions that provide robo-advisors aim to create a comprehensive platform that takes care of all your monetary goals and investments. In order to do this, robo-investing includes a ton of features that encompass retirement planning, tax-loss harvesting and strategies, and automatic rebalancing. Features may vary from platform to platform, so make sure the one you choose has what you want.

  • Investing without Bias

There is no debate that the human element can be beneficial for investment purposes, but sometimes decisions need to be made based on numbers and trends, and that’s what robo-advisors can do. They are free of human bias and the emotional risks that come along with it. Although emotionless, you can trust them because the algorithms they function on are Noble Prize-winning and based off of tried and true investment theories.

We believe that it’s best to balance the best of both worlds and pick an investment platform that has both human and AI advisors.


  • Are Not as Personalized as Human Advisors

Their lack of human bias is a double-edged sword that can be a con as well. Stuff happens in life, and sometimes unexpected occurrences such as unforeseen money-related issues can arise. You would want your advisor to be able to account for that and make the moves to mitigate the damage. Robo-advisors aren’t advanced enough for that as of now, but a way around this con is to pick a platform that gives you access to real-person advisors.

  • Lack of Flexibility

At the root of it all, robo-advisors are still in the simple stages, so they cannot make abrupt moves outside of their algorithms. Hopefully, with all the advancements in programming, we can find a way to curb this issue in the future.

How to Pick the Right Robo Stock Advisor

So, you’re convinced that a robo stock advisor is necessary, but how do you pick the right one for you? What’s a good fit for one person may not make sense for another. Instead of relying on the advice of others, we have taken the liberty of outlining aspects to consider on your robo-advisor search.

What Are Your Financial Goals?

What is the purpose of going with a robo financial advisor? What do you plan to achieve and get out of the service? Think about your targets to answer these questions. What you plan on doing will determine the risk and aggressiveness of your profile, along with which robo-advisor has the means and capability of meeting those goals.

For example, if you’re saving for your retirement or your child’s future, it could take a lot more work and consideration than if you are opening an account for a new car. Is human access important to you, and do you want to set it and forget it, or would you prefer to have some control? These are all necessary questions that will help you narrow down your choices.

What Are the Features You Get with the Robo-Investors?

Our first point ties in nicely with this next one. What features do you need from your robo-advisor? We personally suggest tax-loss harvesting and automatic rebalancing because they are two very useful features that can save you money.

Does the platform provide you with access to human support? Sometimes you just want a human touch and some person-to-person interaction. There are definitely some major advantages to having access to a real person.

What about SRIs? If being sustainable and eco-friendly are important to you, make sure the robo-advisor offers socially responsible investments.

Pay Attention to the Fees

Many people take a big hit in fees when they’re investing, and it can really hurt. Make sure to look into all the fees included with the platform of your choice. Weed out all the hidden fees (if there are any) and do some simple calculations to figure out if it’s worth it.

Fees include the investment management fees, fees for transfers and withdrawals, account fees, type of subscription plan (annually/monthly), trading fees, etc. While it shouldn’t be the only thing you assess the platform with, transparency in fees is an indication of a trustworthy service.

What Are the Account and Investment Minimums?

How much do you need to get started? Are there account and investment minimums? You have to make sure you have the capital to go with the platform you want. There are robo-advisors out there that charge $0 account minimums and allow users to get started with as little as $1.

Search and Compare Robo-Traders

Nothing is more important than doing your own due diligence. Don’t just take people’s advice. Don’t get afraid to take the time to look into platforms online and compare them. Make your own pros and cons list of each to determine the best one. If you don’t know where to start, we took the time to compile a list of the major robo-advisor services out there that excel in investment management.

List of Robo-Advisors That Do It Right

This robo-advisor list includes individual platforms and robo-advisors from large financial institutions.

SoFi Automated Investing

SoFi Automated Investing is a great choice for beginners and passive investors. It offers little to no fees, the returns that are worth it, and you get a mix of services and profiles to choose from. If you’re looking for a platform with access to a human financial advisor, then SoFi is a top contender. Not to mention, SoFi also has automatic rebalancing and a very intuitive platform. Don’t believe us? Check it out here.


We are also big fans of Betterment, which is an industry-leading robo-advisor with famously low costs, tax-loss harvesting, crypto investments and offers up to a year of its services for free. Betterment can meet a selection of financial goals, including retirement planning, putting away money for a rainy day, and of course, general investing. You also get real financial advisor access, flexible portfolios, SmartDeposit, external account linking, etc.

Betterment has to be one of the more feature-packed robo-advisors available. Look into what else Betterment has in store for you here.


Like Betterment, Wealthfront is a giant in the robo-advisor arena and offers ETF customization, access to crypto, and loans on investment balances and is our first suggestion for more active traders. Wealthfront has pretty low management fees (0.25%) without hidden fees, tax-loss harvesting and a wide array of supported accounts. Click here to take Wealthfront for a test drive.

M1 Finance

M1 Finance is another fan favorite, and a top choice of ours. The robo-advisor platform is very low cost, is one of the ones that offer a $0 account minimum, and is excellent for both passive and DIY investors. Looking for SRIs? M1 Finance has got them! The pie charts the platform uses to depict your investment profile make customization easier and more visual.

It also offers Smart Transfers, which moves money into your investment accounts automatically, similar to rebalancing which is also offered on the platform. There is also tax-loss harvesting, fractional shares available, and dividend reinvestments that catapult M1 Finance to one of the top positions. Do you like what you see so far? Sign up for M1 Finance here.


For investors in Canada there’s Wealthsimple. It’s a robo-advisor that can customize profiles to meet certain financial goals. It’s a great hands-off approach to investing without account minimums. It’s very easy to set up your account on the platform, and it offers SRIs and varying subscription plans. You can get portfolio advice on the platform, and a huge bonus is Wealthsimple offers fractional shares.

Intrigued? Check out what Wealthsimple has to offer, what it can do, and what you need to get started!


Can I lose money with a robo-advisor?

Yes, you can lose money with a robo-advisor, and the same goes for any type of investment. Although, robo-advisors do come with less risk than most as they usually play it safe (or according to your risk tolerance) and offer features such as automatic rebalancing, tax-loss harvesting and diverse profile selections to mitigate the risk.

Are robo-advisors good?

Yes, robo-advisors are good. These platforms are based on Nobel Prize-winning algorithms and investment theories that have proven track records. Many robo-advisors are easy-to-use, hands-off, and great for entry-level investors due to the low fees and account minimums.

How much does a robo-advisor cost?

A robo-advisor typically charges 0.25% to 0.90% of your entire asset value under management. Some services charge a little under that but rarely do you see a robo-advisor that exceeds 1%. Robo-advisors are famous for their low costs, efficiency, and simplicity.

Bottom Line

Now you should understand what robo-investing is. The next step is to determine if it’s right for you, pick the best one, and start investing! Follow our quick checklist to find the most suitable robo-advisor. If you don’t know where to start, our list of top contenders is a good beginning point. Robo-advisors are a great entryway into online investing and they can be a great supplement to what you already have.

Jeremy Biberdorf
Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. He's a father of 2 beautiful girls, a dog owner, a long-time online entrepreneur and an investing enthusiast.

Leave a Comment

Your email address will not be published. Required fields are marked *