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Investing strategies

What's a robo advisor

Robo-advisors reduce wasted time and guesswork with investing. Learn how they work and who they serve best.
7 minute read
October 20, 2023
Investing strategies
Choosing advice

Whether you're new to investing or have some experience, it's common to look for help when choosing investments. One option that's gained popularity in recent years is the robo-advisor—an online platform that manages your investments automatically. In other words, it's financial advice that comes from an algorithm instead of a person, and it can take a lot of the time, guesswork, and stress out of managing your portfolio. 

How does a robo-advisor work?

When you first enroll in a robo-advisor, it will ask for basic information about your goals, risk tolerance, and the length of time you want to stay invested. From there, the technology takes over to suggest a diversified portfolio. Then it automatically invests the money for you based on the information you provided.

The robo-advisor continues to manage your investments over time and rebalances your portfolio periodically to make sure your asset mix stays on track. 

How much does a robo-advisor typically cost?

A robo-advisor typically costs less than financial advice from a human advisor. Fees are usually based on the amount of money you have invested in the account. Depending on which platform you use, you'll typically pay an annual management fee between 0.25% and 0.50%—that's less than the average 1% typically charged for a financial advisor.*

While standard brokerage accounts typically require clients to pay commissions and fees for exchanging investments, rebalancing, contributing, and withdrawing, most robo-advisors waive those fees. 

How often do robo-advisors monitor and rebalance your investments?

Portfolio monitoring can occur daily, weekly, or quarterly depending on the robo-advisor you choose. If you enroll in Vanguard Digital Advisor®, we'll monitor your account daily. And if your portfolio has shifted from its target asset allocation by more than 5% in any asset class, we'll rebalance your account to get you back on track.

Do robo-advisors create financial plans?

Robo-advisors offer financial planning services, but they don't create personalized financial plans. Some may also offer guidance on saving for retirement, paying off debt, and adding custom goals to your plan.

If you're looking for a more customized financial planning strategy, then you may want to compare investment advice options to see what best suits your needs. 

What if you want to speak with an advisor?

If the idea of a robo-advisor sounds good to you but you'd like the option to speak with an advisor, you may want to explore a hybrid robo-advisor and personal advisor service. With this option, you'll be able to manage most of your investments online, but if something comes up and you want to talk with an advisor, you can.

If managing your portfolio sounds daunting and you'd rather have a dedicated advisor helping you with your investments, you might want to look into a personal financial advice service ($500,000 minimum to enroll). 

Advantages versus disadvantages of robo-advisors


It's easy to get started. The minimum investment amount is typically much lower than for other advice options.

They have lower fees. Robo-advisors typically cost less than human advisors. The fees are usually based on the amount of money you have invested in the account. And depending on which platform you use, you'll typically pay an annual management fee between 0.25% and 0.50%.*  That means for every $10,000 invested, your fee would be between $25 and $50 each year. Robo-advisors usually waive transaction fees and commissions.

They're good for hands-off investors. If you don't like researching investment options and keeping up with financial news, a robo-advisor can take care of the guesswork for you. They offer automated investment management so you can "set it and forget it."

They can potentially reduce your taxes.** Some robo-advisors, like Digital Advisor, offer free tax-loss harvesting services to help you reduce your tax bill and keep more of your returns.


You don't always have the option to speak with a financial advisor. If you experience a life event that could affect your financial plan, you may want to speak with an advisor to get more personalized assistance, but that's not always an option with robo-advisors. However, a hybrid service that combines a robo-advisor with the option to speak with a human advisor can help address that.

They typically limit your investment choices. Robo-advisors often offer a preselected, diversified list of investment options like ETFs (exchange-traded funds) and mutual funds. If you're a hands-on investor who likes researching the markets and choosing your own investments, you may prefer to open a brokerage account so you can have more control over your portfolio.

The platform you choose may not be able to manage all your accounts. If you have investments at other financial institutions, like a 401(k) plan, the robo-advisor may not be able to manage those accounts, which might make it difficult to keep track of your overall financial picture. 

Is a robo-advisor right for you?

If you're new to investing and enjoy monitoring your accounts online, then a robo-advisor might be right for you. Robo-advisors use sophisticated technology to build and manage your portfolio automatically. They can be a great solution if you don't want to spend a lot of time and effort keeping up with the markets or doing financial housekeeping tasks like rebalancing.

Watch an overview about robo-advisors

The following video provides an overview of robo-advisors, including how they can help you reach your goals. 

You may have heard the term "robo-advisor" before. As more and more people are turning to their phones and tablets to handle their finances, it’s a word that’s getting a lot of use. But what are robo-advisors, and what do they do? Here’s an overview that can help you decide whether a robo-advisor might be a good fit for your life and finances.

A robo-advisor is an online platform that manages your investments automatically. It’s financial advice that comes from an algorithm instead of a person, and it can take a lot of the time, guesswork, and stress out of owning a portfolio.

When you sign up for a robo-advisor, it’ll ask for basic information about your goals, risk tolerance, and the length of time you want to stay invested.

Then technology takes over to suggest a portfolio for you—but it doesn’t stop there. A robo-advisor also does the actual investing for you, and it’ll manage those investments over time, rebalancing periodically to make sure your asset mix stays on the right track. All behind the scenes, all automatically. It’s pretty cool when you think about it.

A robo-advisor can be a good option for people who don’t want the stress of keeping up with the markets or managing their own portfolios. You can set it and forget it, or set it and check in as often as you want. You get the peace of mind that comes from knowing your money is working hard for you, without all the time and effort it takes to do everything yourself.

Robo-advisors come with another perk. They often charge less in fees than traditional financial advice services, and you can usually start investing with a lower initial deposit.

There are hundreds of robo-advisors out there, and not all of them are alike. That’s why it’s important to research and compare options to decide what works best for you. Robo-advisors do share one important thing in common, though—they’re built to give you the time and freedom to focus on the things in your life that matter the most. After all, this is your journey.

Find out how our robo-advisor can help

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*NerdWallet 2023. How Much Does a Financial Advisor Cost?

**Vanguard will determine if tax-loss harvesting is appropriate for your specific situation. Tax-loss harvesting is included in your Digital Advisor annual advisory fee. Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax advisor before taking action.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

For more information about Vanguard mutual funds or Vanguard ETFs, obtain a mutual fund or ETF prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other information are contained in the prospectus; read and consider it carefully before investing.

We recommend that you consult a tax or financial advisor about your individual situation.