Robo-advisors are automated platforms that provide investment management services with minimal human intervention. They use algorithms to build and manage investment portfolios based on a user’s risk tolerance, financial goals, and time horizon. Typically, robo-advisors offer services at a lower cost compared to traditional financial advisors, making them appealing for beginner or passive investors.

When you sign up with a robo-advisor, you usually fill out a questionnaire that assesses your financial goals, risk tolerance, and investment preferences. Based on this data, the algorithm allocates your funds into a diversified portfolio, often using low-cost exchange-traded funds (ETFs). Robo-advisors continuously monitor and rebalance the portfolio to maintain the desired asset allocation.

Some robo-advisors also offer tax-loss harvesting, a technique that helps reduce the investor’s tax liability by selling underperforming assets and replacing them with similar ones. They may also allow users to customize their portfolios to align with specific preferences, like socially responsible investing.

The major advantage of robo-advisors is their accessibility and affordability. Investors can start with smaller amounts of capital, and the platform automatically manages the portfolio, reducing the need for in-depth knowledge of stock trading. However, robo-advisors lack the personalized advice that a human advisor might provide.