Are Robo-Advisors a Good Idea? What Are The Pro & Cons?

Should You Use A Robo-Advisor?

Robo-advisors can be a great idea for the right person. They are essentially automated financial advisors who use algorithms and computer programs to manage your investments with minimal human input.

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This makes them ideal for those who don’t have the time, resources, or expertise to do it themselves. Robo-advisors typically charge lower fees than traditional financial advisors, offer more diversified portfolios, and provide more tailored advice and strategies for individual investors. They are also incredibly convenient; all you need to do is enter your information once, and the algorithm does the rest.

The downside of robo-advisors is that they don’t provide you with a personal financial advisor who can give you customized advice or consider your unique situation.

Are Robo Advisors A Good Idea?
Are Robo-Advisors A Good Idea?

8 Benefits of Robo-Advisors

  1. Many robo-advisors are tuned for optimal tax-loss harvesting – saving you money.
  2. Robo-advisors are tuned for automatic portfolio rotation & adjustment – saving you time.
  3. Automatic balancing of a portfolio based on your risk profile – reducing your risk
  4. Provision of low-cost access to ETFs & Mutual Funds – reducing trading costs
  5. Some robo-advisors provide model portfolios for socially responsible investing.
  6. Robo-advisors allow for gender or life-stage-specific portfolios – providing a personalized portfolio.
  7. All robo-advisors provide instant access to your investment performance – transparency.
  8. Hybrid robo-advisors allow you to talk to a human account manager – the human touch.


1. Many Robo-Advisors are tuned for optimal tax-loss harvesting – saving you money

Some but not all robo-advisors incorporate tax-loss harvesting into their automated portfolio management. If you have done private investing before, you will know that tax planning on your investments can be a significant burden at the end of the year. You are compelled to sell any losing stocks, and you may have to offset your taxes against the loss.

As robo-advisors are usually highly automated, they can run the relevant algorithms to optimally offset elements of your portfolio to minimize your tax burden for the year.

A good Robo Advisor service like M1Finance will deliver the following documents after the year-end, usually in January:

  • Tax Form 1099-R
  • Tax For Consolidated 1099
  • Tax Form 5498

2. Robo-Advisors are tuned for automatic portfolio rotation & adjustment – saving you time

Nearly all robo-advisors are based on the principle of modern portfolio theory (MPT), a widely utilized methodology for assigning weighting to different types of financial assets to achieve the optimal balance of risk versus reward.

saving time investing

Employing MPT allows the Robo Advisor service to automatically adjust your weighting in different assets, such as stocks, bonds, currencies, and ETFs, to ensure an appropriately diversified portfolio.

The process is designed to offset risk through diversification. Still, one of the problems with that approach is it can also offset a lot of rewards, as most Robo Advisory services fail to beat the underlying market index, usually the S&P500 index.

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3. Automatic balancing of a portfolio based on your risk profile – reducing your risk

For example, you may be close to retirement and decide to minimize your risk of loss in a stock market crash. In this case, you would want perhaps to have 80% of your portfolio in bonds and 20% in stocks and ETFs.

Robo-advisors will automatically readjust your portfolio based on your risk profile. Some allow you to select the weighting of assets, and others, offering even greater simplicity, will let you answer a few questions and make the adjustments for you.

4. Provision of low-cost access to ETFs & Mutual Funds – reducing trading costs

Most robo-advisors will buy and sell exchange-traded funds (ETF) on your behalf. However, it would be best to be careful, as not all robo-advisors are created equally. Not all are low-cost, and many, especially the bigger names like Vanguard, Schwab, and Fidelity, may charge a management fee, fill your portfolio with the ETFs they manage, and charge an additional ETF fee.

[Related Article: Find out more about the fees and costs associated with Our Robo Advisor Comparison]

5. Some Robo-Advisors provide model portfolios for socially responsible investing

As a person who eats organic food, is practically vegetarian, and cares about the environment and the social impact of capitalism, I find a key benefit of the Robo services is socially responsible investing portfolios. Companies such as Ellevest, and Betterment enable you to bypass the burden of researching the background of every company you invest in by offering pre-structured socially responsible portfolios.

Other companies, such as M1 Finance, go even further by providing hundreds of different model portfolios (they call Pies) so that you can mix and match your portfolio based on a collection of pies.

6. Robo-Advisors allow for gender or life-stage-specific portfolios

Unfortunately, in a world still dominated by men, Ellevest seeks to breathe fresh air into the stuffy male-dominated investment industry. The unique selling point and niche market that Ellevest has carved out focus on the unique needs of women. Interestingly, women live longer than men, usually have a career break for children, and earn less than men; this means that women require different advice more suited to their life events.

7. All Robo-Advisors provide instant access to your investment performance

Of course, this is something you would expect; the transparency of seeing how your portfolio is balanced and the return on investment you are getting is paramount.

M1 Finance gives you a very good insight into how your portfolio is balanced and what assets you own.

8. Hybrid Advisors allow you to talk to a human account manager

A Hybrid robo-advisor service essentially adds some traditional customer service to the mix. This means you will have telephone access to a registered financial advisor to discuss your situation, preferences, and questions.

Of course, this higher level of personalized service usually comes with additional fees. Betterment, Ellevest, Morgan Stanley, Vanguard, and Fidelity all offer this service. See our Robo Advisor comparison for more granular details.


1. Performance

One downside is that most Robo Investment services fail to beat the market, meaning they do not provide higher returns than simply investing in a single market-indexed ETF, e.g., the S&P500 index. Many claim that beating the market is unimportant and that minimizing risk is the most important; you can decide what is most important for yourself.

2. Lack of Personalized Human Interaction.

One major disadvantage of robo-advisors is the absence of direct human interaction. While they offer convenience and accessibility, they often lack the personal touch and tailored advice that a human financial advisor can provide.

3. Limited Flexibility

Robo-advisors typically work based on algorithms and predetermined strategies. This lack of flexibility can be a drawback for investors with unique financial situations or specific investment preferences that may not fit within the robo advisor’s automated framework.

4. Inability to Navigate Complex Financial Situations

Robo-advisors may struggle to handle complex financial scenarios that require a more nuanced approach. For individuals with intricate investment needs or intricate tax situations, the limitations of robo-advisors in providing comprehensive guidance can be a significant drawback.

5. Limited Investment Options

While robo-advisors offer diversified portfolios, they may have limitations in terms of investment options compared to traditional financial advisors. Investors looking for specific assets or alternative investment opportunities may find the offerings of robo-advisors too restrictive.

6. Fees and Costs

Although robo-advisors are often touted for their low fees compared to traditional advisors, investors should be aware that these fees can still add up over time and impact overall returns. Understanding the fee structure and comparing costs with the level of service provided is crucial in evaluating the value of using a robo-advisor.

Are Robo-Advisors Good?

Yes, robo-advisors are good if you want to save time managing your investments. They automate tax-loss harvesting and rebalancing and provide commission-free trading in ETFs and stocks.

Let us know your thoughts in the comments section below.


Learn More About Robo Advisors With Our 12 Part Q&A Series

1★ What is a Robo Advisor & How Do They Work? 7★ Are Robo Advisors A Good Idea? 8 Advantages Uncovered
2★ Hybrid vs. AI vs. Robo Advisors 8★ Are Robo Advisors Worth It? What Are The Alternatives?
3★ How Do Robo Advisors Really Work? In 7 Steps 9★ Do Robo Advisors Beat The Market? Fund Performance Uncovered
4★ A Hybrid Robo Advisor- What Is It & How Do They Work? 10★ Are Robo Advisors Safe? Security of Assets Examined
5★ Robo Advisors vs. Human Advisors 11★ Top 10 Best Robo Advisors [160 Point Review & Comparison]
6★ Top 20 Best Robo Advisor Returns & Fees Comparison 12★ Review Winner M1 Finance