A robo-advisor is supposed to be a software-driven investment advisor, but in reality - at least until AI takes over - it is more like a deconstructed fund of funds or portfolio that owns other investments to make a total diversified portfolio. Instead of a human deciding where to invest your money, a computer program does it. In practice, humans determined what percentage of stocks and bonds you should be in for X risk level - the computer only does the work of deciding where to put you based on your data.

Here's how it works: You answer some questions online about your money goals and how much risk you're okay with. The robo-advisor then uses these answers to pick a mix of investments for you. It will keep a soulless robot eye on your investments and make changes if needed. The best part? It usually costs less than hiring a person to do the same job. Many people like robo-advisors because they're simple and affordable. Think of it as a smart money app that helps you grow your savings without needing to know a lot about investing.

Robo-advisors simply allocate your money similar to a fund of funds, mutual funds, or ETFs, and do not know who you are or perform more complex financial work that a human advisor might do - services you might not need and generally cost 1% a year. Often, these human advisors come with mediocre returns, high-fee funds, and a model portfolio that all clients get, such that you might as well opt for a cheaper robo-advisor. Some robos offer a degree of financial planning on the phone.

So far, robo-advisors have done little to improve upon the portfolio you would get owning a total portfolio "fund of funds" type investments like Vanguard Target Retirement Funds with a low $1,000 minimum investment and just 0.08% a year or $8 per $10,000 - less than ANY current robo-advisor except one! Some offer automatic rebalancing and tout this feature, but balanced mutual funds are always rebalancing. In theory, ones that direct index (as opposed to through funds) and do tax-loss selling have an advantage, but they are more costly and don't offer benefits for a tax-deferred account. In practice, this only works with a bunch of larger-cap US stocks - global bonds and stocks would require funds or ETFs.

As of now, there is only one truly 100% free robo-advisor (Fidelity) and that only up to $25,000, as the underlying investments usually have fees which range from 0.07%-0.50% or more. Many are from fintech startups that will try to upgrade you to a pricey 0.70% (or more) fee service or even go for 2%+ fee crypto. Make sure you stick with the zero-fee service and don't get sucked into higher-fee offerings.

The risk of a Robo Advisor becoming self-aware and using your money to fund a secret robot army intent on destroying humanity is still low. We will update you on this risk if it changes.