A robo advisor, also known as a robo-adviser or robo, is a digital platform that provides automated, algorithm-driven financial planning and investment services with minimal human intervention. These platforms offer a range of services, including financial advice, portfolio management, and investment strategies, all based on mathematical rules or algorithms. Robo advisors are designed by financial advisors, investment managers, and data scientists, and coded in software by programmers.
The main features of a robo advisor include:
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Automated investment advice: Robo advisors ask users questions about their financial situation and future goals through an online survey. They then use the data to offer personalized advice and automatically invest on behalf of the user.
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Low costs and low account minimums: Robo advisors are often more affordable than traditional human financial advisors, with management fees typically ranging from 0.25% to 0.50% of the assets under management. Some robo advisors even offer free options for users with smaller account balances.
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Diversified portfolios: Robo advisors build, monitor, and automatically rebalance diversified portfolios based on the users goals and risk tolerance. These portfolios are often composed of low-fee exchange-traded funds (ETFs).
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Additional services: Some robo advisors offer advanced features such as tax loss harvesting, which involves selling off securities over time to minimize taxes. Others may provide access to more customized investment options for advanced investors or those with larger account balances.
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Limited human interaction: While robo advisors are primarily automated, some providers offer access to human advisors for users who have questions or need additional assistance. However, the level of human intervention varies among different robo advisors.
