Liz Weston: Why You Should Love Robo-advisers

Robo-advisers have been around long enough that the question is no longer whether you should turn your investment decisions over to a computer. Now the question is: Why wouldn’t you?

The success of Wealthfront and Betterment, two startups that helped launch the trend, led mainstream investment companies including Vanguard, Schwab and Fidelity to add robo-advice services in recent years. Depending on the robo-adviser, you may also have access to human financial advisers, socially responsible investments and tax-loss harvesting to help reduce tax bills.

This is not, and never really was, a niche product only for tech-happy millennials. From the beginning, investors of all ages spotted the significant advantages of letting computers run their portfolios. Among them:

ROBO-ADVISERS ARE CHEAP

Robo-advisers — also known as automated financial advisers — use computer algorithms to invest your money and rebalance the portfolios as needed to meet your goals. Robos typically use ultralow-cost exchange-traded funds and charge annual management fees of about 0.25%, for an all-in cost that can land under 0.5%.

Contrast that with traditional investment costs, which can be 1% or even more on top of the annual management fees. It’s not unusual for investors to pay 2% or more annually, once all costs are considered.

This is a huge deal, since costs have an enormous impact on your ultimate returns and are among the few factors you can actually control.