In addition to diversification, most robo-advisors provide automatic portfolio rebalancing and, increasingly, tax-loss harvesting. Portfolio rebalancing helps ensure you keep the right balance of investment types to reach your goals as market conditions change, and tax-loss harvesting can help decrease the amount you owe long term on capital gains taxes.
How Much Does a Robo-Advisor Cost?
Robo-advisors generally charge annual management fees of 0.25% to 0.50% of your assets under management (AUM), although some charge a fixed monthly subscription fee instead. Low fees compared to traditional financial advisors are considered one of the key advantages of robo-advisors.
Traditional financial advisors typically charge around 1.0% of AUM per year (fees may decrease for clients with larger balances). On an investment balance of $100,000, a 0.25% robo-advisor fee would amount to $250 a year—while a 1.0% fee would equal $1,000 a year.
Like your investment balance, fees compound over time and can cost you a significant portion of your long-term gains: Over 20 years, for example, a 1% advisory fee may cost you almost $30,000 more than a 0.25% fee on a $100,000 starting balance.