Should I use a robo adviser?

Stock

Using a robo-advisor can be beneficial as they provide a range of services such as researching the best ETFs to buy, automatically rebalancing your portfolio on an ongoing basis, reinvesting dividends in an intelligent way and providing advanced services such as tax loss harvesting. All these services are meant to benefit your portfolio returns by more than the cost of a robo-advisor which is generally around 0.25% of your portfolio every year.

Why would I use a robo-advisor instead of just buying the ETFs myself? This is a great question and actually one that goes back more than a decade to when the first robo-advisors came onto the market. Why not just buy the ETFs yourself instead of paying an advisor 0.25 percent a year to do it for you? The answer is that robo-advisors actually earn their money several different ways. They actually research the best ETFs for you to own, low cost, the volume of trading, a lot of things that most investors don't look at. They then automatically rebalance your portfolio for you on an ongoing basis. Most people only rebalance their portfolio idiosyncratically, maybe once a year, maybe once every couple years when they remember. Computers never forget and so they always rebalance your portfolio for you correctly. A lot of these stocks pay dividends, reinvesting those dividends is a tricky problem as well to do intelligently and robo-advisors rebalance your portfolio by reinvesting dividends which is an intelligent way to do it and then of course some of the robo-advisors actually provide advanced services like tax loss harvesting where they'll use different ETFs in the same category to help you save money on taxes along the way.

All of these things benefit your portfolio returns by more than the cost of a robo-advisor.

So if the question is should you spend 0.25 percent of your portfolio every year to make sure that you're doing all the right things as you invest in ETFs, the answer for most people is probably yes.

Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.

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