What a robo advisor does and who it's built for
A robo advisor is a service that builds and manages an investment portfolio for you based on answers you give about your age, goals, and how much risk you can handle. The service then buys a mix of low-cost index funds or exchange-traded funds (ETFs) — funds that track entire market segments rather than trying to beat them — and rebalances that mix automatically when prices shift. You don't pick individual stocks or bonds. You don't call a person. The algorithm does the work.
Robo advisors are built for people who want to invest money over years or decades but don't want to spend time learning stock picking or paying a financial advisor 1% of their portfolio every year. They work best if you have a lump sum to invest or can add money regularly, and if you're comfortable letting the service hold your money in a brokerage account without touching it for long stretches.
The trade-off is simplicity for control. You choose your risk level once, then mostly step back. If you want to make frequent changes, pick individual stocks, or get information tailored to your specific tax situation, a robo advisor isn't the right tool.
Key Takeaways
- Robo advisors charge between 0.25% and 0.50% per year of the money you invest, which is far less than traditional financial advisors but more than managing index funds on your own.
- Most robo advisors require a minimum starting balance — often $500 to $5,000 — though some have no minimum at all.
- The service automatically rebalances your portfolio when your mix of stocks and bonds drifts from your target, which is the main work it does for you.
- You can open an account in a regular taxable brokerage account or in a tax-advantaged account like an IRA, and the robo advisor will manage whichever you choose.
- Most robo advisors use a questionnaire to sort you into a risk category, then build a portfolio of index funds that match that category.
How robo advisors charge and what that costs you
Robo advisors charge an annual fee based on the total amount of money you have with them. That fee typically ranges from 0.25% to 0.50% per year. On a $10,000 portfolio, that's $25 to $50 per year. On $100,000, it's $250 to $500 per year.
Some robo advisors waive the fee if your balance stays below a certain amount — often $5,000 or $10,000 — or if you set up automatic monthly deposits. A few charge no advisory fee at all but make money from other sources, like interest on cash held in your account or referral payments from fund companies. Read the fee schedule on the service's website to see which model applies.
Beyond the advisory fee, you also pay the internal expenses of the funds themselves. An index fund that tracks the S&P 500 might cost 0.03% to 0.10% per year. These are separate from the robo advisor's fee and are deducted automatically from the fund's value. The total cost — advisory fee plus fund expenses — usually lands between 0.35% and 0.65% per year, which is still much cheaper than paying a human advisor 1% or more.
The account types robo advisors offer
Most robo advisors let you open either a regular taxable brokerage account or a tax-advantaged retirement account. A taxable brokerage account has no contribution limits and no rules about when you can withdraw money, but you pay taxes on dividends and gains each year. A traditional IRA lets you deduct contributions from your taxes now and pay taxes when you withdraw in retirement. A Roth IRA lets you contribute after-tax money now and withdraw tax-free in retirement.
If you're under 60 and investing for retirement, a Roth or traditional IRA usually makes more sense than a taxable account because the tax breaks compound over decades. If you're saving for something other than retirement — a house down payment, a car, a sabbatical — a taxable account is your only option. Some robo advisors also offer SEP IRAs or Solo 401(k)s if you're self-employed.
The robo advisor manages the money the same way regardless of account type. The difference is only in how the taxes work and when you can touch the money without penalty.
How robo advisors build and adjust your portfolio
When you sign up, you answer a questionnaire about your age, income, goals, and how you'd react if your portfolio dropped 20% in a year. Based on your answers, the service sorts you into a risk category — often labeled Conservative, Moderate, or Aggressive — and builds a portfolio that matches it. A Conservative portfolio might be 30% stocks and 70% bonds. An Aggressive one might be 90% stocks and 10% bonds.
The service then buys index funds or ETFs that represent each part of that mix. Instead of owning individual Apple or Microsoft shares, you own a fund that owns hundreds of companies. This spreads your risk across many holdings at once.
As time passes and markets move, your portfolio's mix drifts. If stocks rise faster than bonds, you might end up 95% stocks instead of 90%. The robo advisor periodically rebalances — selling some stocks and buying bonds to get back to 90% — without you having to do anything. This keeps your risk level stable and forces you to sell high and buy low, which is the opposite of what most people do on their own.
Comparing robo advisors on minimum balance and features
| Service | Minimum to Start | Annual Fee | Key Feature |
|---|---|---|---|
| Vanguard Personal Advisor Services | $50,000 | 0.30% | Access to human advisors by phone for accounts over $50,000 |
| Fidelity Go | None | 0% (optional 0.35% for premium features) | No minimum balance, no advisory fee for basic service |
| Schwab Intelligent Portfolios | None | 0% | No minimum, no advisory fee, uses Schwab's own ETFs |
| Betterment | None | 0.25% (or $4/month for accounts under $2,000) | Tax-loss harvesting included; goal-based planning tools |
| Wealthfront | $500 | 0.25% | Tax-loss harvesting; financial planning tools included |
The table above shows five widely used robo advisors and their basic terms. Minimums and fees change, so check each service's current website before opening an account. Some offer lower fees if you maintain a certain balance or set up automatic deposits. Others charge nothing for basic portfolio management but offer paid add-ons like tax planning or financial coaching.
The choice between them often comes down to whether you want a $0 minimum (Fidelity Go, Schwab, Betterment) or are willing to start with $500 or $50,000 for other features. If you're just starting out with a small amount, a no-minimum service makes sense. If you have $50,000 or more and want occasional phone access to a human, Vanguard's hybrid model may be worth the 0.30% fee.
What robo advisors don't do and when to look elsewhere
Robo advisors don't give personalized tax information, help you plan for major life events like retirement or college funding, or adjust your strategy based on your specific situation. They don't manage concentrated stock positions (like company shares you inherited), handle complex estates, or coordinate with your other financial accounts. If you need any of those things, you'll need a human financial advisor or a tax professional.
Robo advisors also aren't for active traders or people who want to pick individual stocks. If you enjoy researching companies and making frequent trades, a robo advisor will feel restrictive. You'd be better served by a regular brokerage account where you control every decision.
If you have less than $500 and want to start investing, some robo advisors have no minimum, but you might also consider a low-cost index fund through Vanguard, Fidelity, or Schwab that you manage yourself. The fees are even lower, though you have to remember to rebalance manually.
How to choose a robo advisor and get your free guide
Start by deciding what account type you need: a taxable brokerage account, a traditional IRA, or a Roth IRA. Then list your priorities: Do you need a $0 minimum, or can you start with $500 or more? Do you want tax-loss harvesting (a feature that sells losing positions to offset gains)? Do you want access to a human advisor by phone? Do you prefer a service run by an established brokerage like Vanguard or Fidelity, or a newer independent company?
Visit the websites of two or three services that match your priorities and read their fee schedules and questionnaires. The questionnaire tells you what risk category they'd put you in and what your portfolio would look like. You don't have to open an account to see this. Once you've chosen, you'll provide your name, Social Security number, and bank details to fund the account. Most services let you start with a one-time deposit or set up automatic monthly transfers.
After you open the account, you can mostly ignore it. Check in once or twice a year to make sure your risk category still matches your situation, but resist the urge to tinker. The whole point of a robo advisor is to remove the temptation to make emotional decisions when markets move.
Frequently Asked Questions
Can I withdraw my money whenever I want?
Yes, from a taxable brokerage account. From a traditional or Roth IRA, you can withdraw contributions anytime, but withdrawing earnings before age 59½ usually triggers a 10% penalty plus income taxes. Roth IRA contributions (not earnings) can always come out tax-free. Check your specific account type's rules before opening.
What happens if the market drops 30%?
Your portfolio drops too, but the robo advisor doesn't sell everything or move to cash. It stays invested and rebalances by buying more stocks at lower prices. This is the opposite of panic selling and is why long-term investors benefit from staying the course during downturns.
Do I have to use the robo advisor's recommended risk level?
No. The questionnaire is a starting point. Most services let you adjust your risk category up or down after you open the account. If the recommended portfolio feels too aggressive or too conservative, you can change it, though the service will usually ask you to confirm you understand the trade-off.
Can I move my money to a different robo advisor later?
Yes. You can transfer your holdings to another brokerage or robo advisor without selling them first. This is called an in-kind transfer. Ask your new service how to request it from your old one. The process usually takes one to two weeks.
What if I stop making deposits — do I have to close the account?
No. Your money stays invested and the robo advisor keeps rebalancing it. Some services waive the advisory fee if your balance drops below a minimum, so check your account's terms. You can resume deposits anytime or let the account sit untouched for years.