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Are Robo-Advisors Right for You?

Digital advice can be part of your investment strategy—if it’s the right fit.


Key Takeaways

Robo-advisors offer automated and simple hands-off investing for a lower fee.

They can be a viable option if you’re new to investing or don’t need human interaction.

You might want to pass if you have complex finances with multiple investing goals.

Robo-advising is a tool that uses automated algorithms for financial planning and investments. It typically has lower fees than traditional advisors. These computer programs have been consistently becoming more popular, with an estimated $1.8 billion in assets managed worldwide in 2024.1

This hands-off, low-fee digital advice can sound enticing, especially for its ease of use or if you don’t have the time or inclination to work with a human financial advisor. However, you may find that your situation calls for more individualized attention and portfolio management.

Not all robo-advisors are the same or offer all the same types of services. Understanding potential features you may find can help you decide if robo-advisors are worth it, and which features are most important to you.

What Are Robo-Advisors?

First launched in 2008, robo-advisors use technology and algorithms to help with investment management and parts of financial planning. Before robo-advisors, investors had to manage their portfolios themselves or use a financial advisor, to ensure they were staying on track.

Because they rely on software, robo-advisors feature low-maintenance costs and a nearly human-free alternative to traditional investing. That means “advising” looks more like an automated adjustment than a sit-down meeting or call from an advisor. The strategy and adjustments may be completely or partially automated depending on the investment company.

How Do Robo-Advisors Work?

Robo-advisors suggest investment portfolios based on your information and goals, similar to traditional investing methods. To start with a robo-advisor, fill out a questionnaire online or through an app. This helps determine your financial goals, risk level and preferences.

You’ll provide information about your income and age. Questions may include how comfortable you are with market dips or how long you plan on investing before needing your money. Then, the software provides a strategy, which is a mix of investments to help you achieve your goals. You can deposit funds from there and let the technology do the work.

Regarding regulation, robo-advisors must register with the Securities and Exchange Commission just like human advisors. Similarly, most robo-advisors are members of the Financial Industry Regulatory Authority (FINRA). To verify a robo-advisor's status and services, search for it on the SEC’s Investment Adviser website.

Here are possible ways robo-advisors might respond to a few key aspects of portfolio management.

Managing Investment Risk

All investing carries the risk of losing money; however, most financial advisors use Modern Portfolio Theory (MPT) to manage risk. MPT helps reduce risk for a given level of return (or maximize return for a given level of risk) by constructing a diversified portfolio of investments across different asset classes, such as stocks, bonds, real estate, commodities and others. Many robo-advisors also use MPT for risk management.

Leveraging sophisticated algorithms, robo-advisors typically suggest an appropriate mix of investments. These may include securities, mutual funds, exchange-traded funds (ETFs), short-term investments and (sometimes) cryptocurrencies. The mix is based on your personal goals, risk tolerance and when you will need to use your invested money.

Some robo-advisors use passive index strategies (including assets replicating a market index, such as the S&P 500®), but some use active strategies.

Portfolio Rebalancing

Once your portfolio is set, you can’t simply forget it. For example, if stocks outperform bonds in a given year, a portfolio that’s invested 65% in stocks and 35% in bonds can easily drift so that stocks grow to 75% of your portfolio. To get back to a desired mix of investments or asset allocation, an advisor will “rebalance” the portfolio and sell some stocks to buy bonds.

Some robo-advisors automate the process of rebalancing by establishing rebalancing bands for each investment type. So, if a band is 5%, then once your 65% allocation to stocks grows to 70% (65% + 5%) or falls to 60% (65% – 5%), the entire portfolio is rebalanced to bring it back to 65%.

Other robo-advisors may use active management. In that case, rebalancing of a recommended portfolio would be done by an investment manager when they believe it is necessary.

Tax-Loss Harvesting

Tax-loss harvesting is a strategy in which you offset your capital gains by selling other securities at a loss in a given tax year to minimize your tax bill. It can add meaningfully to your after-tax returns, and some robo-advisors can include this strategy in its algorithms. The robo-advisor must comply with the IRS wash sale rule about selling and acquiring substantially identical securities within 30 days.*

Benefits of Robo-Advisors

For the right investor, there are plenty of benefits to using a robo-advisor depending on which one you choose:

  • Lower fees and minimums. Robo-investment platforms are cheaper and easier to start with than traditional advisors. You don't need to invest as much to begin using them.

  • Extra features. Some robo-advisors can assist with tax-loss harvesting and portfolio rebalancing. This may make investing easier for people who don't want to be very involved. You may also opt to speak to a human advisor, sometimes for an additional fee.

  • Investing that’s always on. Since robo-investing is on an online platform, investors can access their portfolio information 24/7, without requiring human interactions.

Drawbacks of Robo-Advisors

Robo-investing has many pros, but it also comes with a fair share of cons, including:

  • Impersonal planning. Starting with a robo-advisor is easy with just a questionnaire or a few clicks, but it means no human interaction. You’re less likely to get a personal touch or develop a relationship with an advisor. Depending on the investment company, you might be able to pay for a one-time ad hoc consultation with a person for a fee.

  • Limited products. Robo-advisors typically work with a limited selection of investments, making purchasing certain individual stocks or assets challenging.

  • Inflexible account types. Most robo-advisors can manage individual retirement accounts and taxable investment accounts. However, few offer management for 401(k)s, 529 college savings plans or trusts.

Looking for Other Ways to Make Investing Easier?

Whether you a use robo-advisor or work with a financial consultant, an automatic investment plan can help keep you on track toward your goals.

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What to Consider When Choosing Your Advisor

You can manage your money using a robo-advisor or a traditional advisor or do it yourself. Ultimately, you want to trust who's managing your investments and opt for a method that fits your style and situation. Weigh the pros and cons of using a robo-advisor and understand that you don’t have to pick just one solution. Some people choose to combine two or three to cover their bases.

Another aspect not to overlook is customer service across different points of contact with your advisor. Besides setting you up on an investment plan and periodic check-ins if you use a traditional advisor, you may want to access a human at unscheduled times.

If the market takes a nosedive or you lose your job, do you want to talk to someone for advice? Knowing how much interaction a robo-advisor provides can help you determine if it fits your needs.

Are Robo-Advisors Worth It?

Working with a robo-advisor is worth it for some, but perhaps not everyone.

If you’re new to investing, the affordability and lower barrier to entry of robo-investing could be a good fit. Plus, you don’t have to rebalance or constantly check your investments manually.

But if you prefer a do-it-yourself approach to investing or want a human connection, robo-advising might not be worth it. If you’re more hands-on with your portfolio, the automatic features of robo-advising might be more of a hurdle than a help.

Additionally, if you want to hold all your investments in one place, it may be hard to do that with a robo-advisor. The one-size-fits-all solution is great for many but doesn’t offer much customization. If you’re happy with your current investment plan, don’t feel pressured to change it just because of a trend.

Robo-advising is a good option for those who prefer simple investing or are new to building a portfolio. It is both easy to use and affordable, making it an appealing way to start investing.

Check Out Our Digital Advice Service

Our service is designed to be the ultimate combo of robo-advice with the human touch. It's easy to use and the recommended portfolio is professionally managed by our active investment managers.


The IRS’ wash-sale rule is a tax rule that prohibits investors from creating “artificial losses” by selling securities at a loss and buying the same or a substantially identical security within 30 days before or after the sale (a total of 60 days)


Statistica Market Insights. Robo-Advisors - Worldwide. January 2024.

Long- and short-term capital gains are taxed at different rates. Long-term gains may only be offset by longer-term losses. Likewise, short-term gains may only be offset by short-term losses.

American Century's advisory services are provided by American Century Investments Private Client Group, Inc., a registered investment advisor. These advisory services provide discretionary investment management for a fee. The amount of the fee and how it is charged depend on the advisory service you select. American Century’s financial consultants do not receive a portion or a range of the advisory fee paid. Contact us to learn more about the different advisory services. All investing involves the risk of losing money.

Digital Advice is provided by American Century Investments Private Client Group, Inc., a registered investment advisor, for clients with a minimum $10,000 investment. Digital Advice provides discretionary investment management. American Century does not charge an advisory fee for this discretionary advice. The Journey Portfolios offered through Digital Advice all contain American Century exchange traded funds (ETFs) and mutual funds, which charge investors investment management fees, underlying fund fees, and other administrative and servicing fees. Depending on the different weightings or allocation of such ETFs and mutual funds, your fees for investing in a Journey Portfolio will vary, but generally range from 0.25% to 0.40% per year. American Century Investments' financial consultants do not receive a portion, or a range of the advisory fee paid by clients. Client-oriented trades outside of our recommendations, personal consultations by phone or in-person with our financial consultants, and other activities like wire transfer fees are offered for an additional fee.

All investing involves risk.

Diversification does not assure a profit nor does it protect against loss of principal.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.