What is a robo-advisor?
A robo-advisor is an automated investment platform that builds a diversified portfolio of low-cost ETFs based on your risk tolerance and goals, then rebalances and tax-loss harvests automatically. The two best-known are Betterment and Wealthfront, both charging 0.25% a year on assets under management on top of the underlying ETF expense ratios (~0.05% to 0.10%). Schwab Intelligent Portfolios has no advisory fee but holds a sizeable cash drag. Vanguard Digital Advisor charges about 0.15%.
Park $200,000 in Betterment at 0.25%, that’s $500 a year. Over 30 years at 10% returns, the fee drag compounds to roughly $250,000 of foregone wealth on the same starting balance. You could replicate 90% of what they do with three Vanguard ETFs (VTI, VXUS, BND) in a free Vanguard or Fidelity brokerage account and rebalance yourself once a year, taking literally 15 minutes.
Assuming the ‘tax-loss harvesting’ pitch pays for the 0.25% fee. The published benefit, often quoted as 1%+ a year, is heavily front-loaded and depends on a taxable account with sizeable losses. For most users in a workplace 401(k) plus a Roth IRA, the harvested savings are minimal.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.