Are robo-advisors worth it? I think so and use them. Let’s dive into algorithmic asset management and discover what Robo-advisors offer.

You might be thinking, “Surely a robot can’t replace the savvy expertise of an experienced human financial advisor?”

While it’s true that these mechanical masterminds haven’t yet figured out how to replicate that firm, reassuring handshake, they do come with some tantalizing benefits. Lower fees, tax efficiency, and the comfort that they don’t have personal biases against certain investments.

Nothing’s perfect. Let’s explore the pros and cons of robo-advisors and weigh them against our financial goals and risk tolerances.

The Rise of the Robo-Advisors

A Quick History

Once upon a time, in a world before Instagram influencers and TikTok dance routines, robo-advisors started popping up, and the world of finance was never the same.

With their fancy algorithms and irresistible charm, these digital advisors shook the financial industry to its core. These modern marvels quickly gained traction among novice and experienced investors by offering automated investment portfolios and lower fees.

Vanguard Digital Advisor

In the robo-renaissance, a well-known investment titan named Vanguard entered the arena, bringing with it the Digital Advisor.

    • Low fees? Check! Say goodbye to those pesky human fees because this robo-advisor charges a cool 0.15% yearly.
    • Customization? You bet! Okay, it’s not as tailorable as your favorite personalized pumpkin spice latte, but the Digital Advisor creates portfolios based on individual risk tolerances and financial goals.
    • Diversification? Obviously! The Digital Advisor is all about spreading the love (and the investments) with their use of exchange-traded funds (ETFs) to keep your portfolio as balanced as a tightrope walker.


Of course, we can’t talk about robo-advisors without mentioning Betterment, the plucky start-up that quickly made a name for itself in the digital advice space.

Betterment hit the ground running, attracting attention with its dazzling features and winning personality.

    • Goal-oriented: Whether you’re saving for that dream vacation or planning to open your avocado toast café, Betterment’s got your back, with customizable financial goals to keep you on track.
    • Tax-efficient: Don’t worry, Betterment isn’t telling the taxman about your secret cash stash in the Cayman Islands. But it does use tax-optimization strategies to help you keep more of your hard-earned money.
    • Socially responsible: Betterment’s all about giving investors the option to invest in socially responsible portfolios so you can feel good about where your money is going, all while maintaining the quirkiness that we’ve come to expect in the age of memes and high-speed internet.

Are Robo-Advisors Worth It? The Advantages

Lower Fees

Fees cost you money.

Robo-advisors charge lower fees than their mortal financial advisor counterparts. Why, you ask? Well, as it turns out, doing everything digitally is cheaper! Think of it as a discount for embracing the future.

Automated Portfolio Management

Remember those Sundays you spent trying to figure out your portfolio?

Say goodbye to that fun chore because robo-advisors are here to the rescue! With automated portfolio management, robo-advisors take care of your investments, giving you more time for important things.

Efficient Tax-Loss Harvesting

If you’re wondering what tax-loss harvesting is, it’s simple: it’s just a tax-friendly way to deal with the inevitable losses in your portfolio.

And guess what? Robo-advisors are exceedingly good at it because they crunch numbers without ever getting tired or bored.

Their efficient tax-loss harvesting capabilities ensure that your hard earned money doesn’t vanish into a black hole of taxes.

Automatic Rebalancing

Robo-advisors make sure you’re not putting all your eggs in one basket (or a bunch of glamorous tech stocks). With automatic rebalancing, robo-advisors maintain your portfolio in the most optimum way.

Sometimes you need the human touch

The Human Touch and Where Robo-Advisors Fall Short

Financial Planning Tools Limited

When it comes to financial planning tools, let’s face it – robo-advisors sure can crunch numbers and make investment suggestions, but they can’t provide the same level of personalization a human advisor can.

Think of robo-advisors as the microwave of investment platforms – they might get things done quickly, but human feedback and expertise are still needed for the best results.

Robo-advisors manage a whopping $460 billion, but they’re not yet up to par with the expertise of certified financial planners with years of education and experience. Each person’s financial profile is different, and currently, humans have more flexibility than AI.

Personalized Attention Needed

When it comes to a financial plan as unique as your taste in shirts, you want someone who understands your style.

While robo-advisors offer a more affordable option than human advisors, with costs around 0.25% to 0.35% annually, their lower fees may not compensate for the lack of tailored advice.

Robo-advisors tend to be one-size-fits-all.

A human advisor can offer bespoke financial planning by understanding your needs, goals, and aspirations. They can be a guiding light in the financial wilderness.

Is domain investing worth it - Levered Income

Are Robo-Advisors Worth It? Final Thoughts

So, are robo-advisors worth it? Is the juice worth the squeeze?

I think so, and I use them for portions of my portfolio.

In essence, quant strategies (the programming used to build the robo-advisory models) are the backbone of a “robo-advisor.”

The robo-advisor’s strategy focuses on a specific style (Piotroski F-Score models are an example). Before investing, you can read (and should) the strategy in the robo-advisor’s white paper.

Here is a link to Wealthfront’s whitepapers to learn more about their methodology.

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My Approach

I have managed money for years and was in the industry in the early 90’s. I am comfortable analyzing risk and investments for my portfolio.

Depending on the goal of that portion of the portfolio, I currently (when this was written and subject to change) divide investment choices between the following (in percentages):

    • 12.60% Indexing (Vanguard index funds): I can buy and forget about it for years.
    • 4.35% Robo-advisory (Wealthfront Smart Beta, Direct Indexing, and Tax-loss Harvesting): I can buy and forget about it for years.
    • 80.98% Self (Human)-Managed (I manage dividend and fixed-income portfolios): I watch this daily.
    • 1.22% Quant Portfolios (Value-focused quant models – Piotroski F-Score and Graham): I rebalance monthly or semi-annually depending on the quant model.
    • .085% AI-Managed (World dividend and growth portfolios): I rebalance this weekly or monthly, depending on my AI strategy.

Using Wealthfront, Quant, AI-Managed, and Vanguard Index portfolios has saved me a ton of time and allowed me to focus on the dividend and fixed-income portfolios. The goal of Levered Income is saving time and leveraging tools to make (and keep) more money.

You can see that I am heavily skewed to the portfolios I manage directly.

Over time, I will shift a larger percentage to Wealthfront (Robo-advisory) from Self Managed. Also, note that the Quant and AI portfolios are higher risk and won’t allocate more than 2.5% to these strategies.

I leverage the research done by quant strategists (at Wealthfront, Value and Momentum Breakouts, Seeking Alpha, etc.), Investment Platforms (Interactive Brokers, TradingView, etc.), financial AI (Tickeron), and human analysts to make investment decisions. Here are some links to some of the tools I currently use:

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04/20/2024 08:10 pm GMT


Note that this is NOT investment advice. You are responsible for your own investments and choices. If you are uncomfortable managing your own money and need to speak with a person, then speak with a human financial advisor about your specific situation.

Frequently Asked Questions

What are the drawbacks of a robo-advisor?

Robo-advisors lack the human touch. A robo-advisor can’t read your emotions or hold your hand during stock market meltdowns. Also, customization is limited, and complex investment strategies might be out of reach.

So, if you’re craving a more personal touch or seeking niche investments, a robo-advisor might not be for you.

Do I lose money with a robo-advisor?

Investing always comes with risks, robots or not.

Robo-advisors follow algorithms based on their programming, your chosen risk level, and goals, but that doesn’t guarantee you’ll never experience losses.

Robo-advisors invest in the stock market, which can be volatile. So, you might see your hard-earned cash take a robotic roller-coaster ride. Just remember to buckle in, remain calm, and hold on tight.

How does a robo-advisor choose investments?

Imagine a digital matchmaker for your money.

You answer questions related to your investing goals and risk tolerance when you first sign up. The robo-advisor then selects a portfolio of stocks and bonds designed to meet your investment objectives.

The robo-advisor rebalances and adjusts your portfolio based on its programmed parameters.

Robo-advisor vs. human advisor: who wins?

It’s a tough call, as it depends on your situation.

Robo-advisors offer a low-cost and efficient way to manage your investments, perfect for those seeking a no-fuss fling with finance.

But a human advisor may be worth the extra wooing (and fees) if you desire a deeper, more personalized connection.

Ultimately, it’s a question of priorities: choose robo-advisors for simplicity and affordability or opt for the warm embrace of a real-life advisor for a truly tailor-made experience.

Do wealthy investors trust robo-advisors?

You might be surprised that even wealthy investors use robo-advisors.

Many wealthy individuals use robo-advisors as part of their wealth management strategy (I use them).

Investors with large and varied portfolios often turn to human advisors for more complex and personalized financial services. So, in essence, wealthy investors play both sides of the court.

Are robo-advisors rookie-friendly?


Robo-advisors were made for investment newbies and people uncomfortable making investment decisions. They come with low minimum investments, often as little as $100, and user-friendly interfaces that’ll have you feeling like a finance pro in no time.

If you’re dipping your toes into the investing pool for the first time, fear not—a robo-advisor will happily hold your hand (figuratively, of course) and guide you through the digital depths of the investment world.

Good luck!