Robo-advisor or index funds on your own? Fees and which suits you
Once you decide to invest in index funds, two paths appear: hire a robo-advisor (which builds a diversified portfolio and maintains it for you) or buy the funds yourself through a broker or provider. Both invest in the same thing; the difference is the service and the cost.
What a robo-advisor does
You answer a risk-profile questionnaire and the robo-advisor assigns a matching index-fund portfolio (equities + bonds), executes it, reinvests and rebalances automatically. All on autopilot. It's convenient and avoids emotional mistakes.
The extra it costs
That service has a price: on top of the funds' TER, the robo-advisor adds its management fee. All in, a robo-advisor portfolio usually lands around 0.4%–0.7% per year, versus the 0.1%–0.2% you can achieve building the same portfolio with cheap funds yourself. It sounds small, but over 20-30 years that compounded difference is real money — you can see it yourself in the fees tab of the calculator.
When each option pays off
- Robo-advisor if you value not having to decide anything, don't want to learn to rebalance or make periodic contributions, and the peace of mind is worth the extra fee. For many people, a robo-advisor they actually use beats the perfect portfolio they never get around to building.
- On your own if you're willing to pick 1-3 funds, automate a monthly contribution and rebalance once a year. In exchange, you keep the fee you don't pay.
Try it yourself: use the compound interest calculator to simulate your case with your own numbers, see the charts and find your break-even point.
How to start either way
If you go DIY, check our model portfolios as a starting point, compare providers and brokers and their fees, and learn to pick each fund with the criteria guide. If you prefer a robo-advisor, still review its total fees before signing. Either way, factor in taxes. This is educational content, not advice.