Robo-advisor.
In plain English
A robo-advisor is an online platform that automatically builds, rebalances, and tax-optimizes an investment portfolio based on a few questions about age, goals, and risk tolerance. Underneath, almost all robo-advisors hold low-cost index ETFs. Typical fees are 0.25% to 0.40% of AUM per year, far below the 1% to 1.5% a human advisor usually charges. Examples include Betterment, Wealthfront, and the robo-advisors run by big brokerages like Schwab and Vanguard.
01Why it matters
Robo-advisors solve two problems at once for someone starting out: they pick a reasonable diversified portfolio and they keep it diversified through automatic rebalancing. The fee is high enough to matter over decades (0.25% on $500,000 is $1,250 a year) but low enough that the discipline they enforce often pays for itself.
02The math, step by step
Open a Betterment account with $10,000, answer six questions, and the platform allocates the money across about a dozen low-cost ETFs in a roughly 80% stock / 20% bond mix. Each month, new deposits buy whichever asset class is underweight. Once a year or so, the system rebalances back to target.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Robo-advisors handle investing only. They do not help with insurance, estate planning, tax strategy, or behavioral coaching during a market crash. For straightforward investing they often beat the average human advisor on cost; for complex situations a CFP may add more value than the higher fee costs.
Plain-English answers from our glossary. Receipts included. Never advice.
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