Investing can feel overwhelming—especially when you’re just starting out. With so many options available, one of the biggest decisions you’ll face is whether to manage your investments yourself or hand the reins over to a robo advisor. The choice isn’t always straightforward, and the right answer depends on your financial goals, personality, risk tolerance, and how much time you’re willing to invest in managing your money. In this article, we’ll explore the pros and cons of robo advisors versus picking your own investments so you can make an informed decision that aligns with your needs.
What Is a Robo Advisor?
A robo advisor is a digital platform that uses algorithms and automation to manage your investment portfolio with little to no human intervention. These platforms ask you a series of questions about your financial goals, time horizon, and risk tolerance, then use that information to automatically build and manage a diversified portfolio tailored to your profile. Robo advisors typically invest in low-cost exchange-traded funds (ETFs) and rebalance your portfolio over time to maintain your target allocation.
Popular robo advisors include Betterment, Wealthfront, and SoFi Automated Investing. They tend to charge low management fees—often between 0.25% and 0.50% of assets under management—and have low or no minimum investment requirements, making them an accessible option for many beginners.
The Case for Using a Robo Advisor
1. Simplicity and Convenience
One of the biggest advantages of robo advisors is convenience. They remove the need for you to study the stock market, analyze fund performance, or manually rebalance your portfolio. Once you set up your goals and preferences, the platform does the heavy lifting. This hands-off approach is ideal for busy professionals, first-time investors, or anyone who feels intimidated by the complexity of investing.
2. Low Fees and Low Minimums
Traditional financial advisors often charge 1% or more in annual fees and may require tens of thousands of dollars to get started. Robo advisors drastically lower these barriers. Because they’re automated, they can offer lower fees and accept small initial investments—some platforms let you start with just $1 or $10.
3. Diversification and Risk Management
Robo advisors automatically create diversified portfolios based on your risk profile. They typically use a mix of domestic and international stocks, bonds, and sometimes alternative assets. This built-in diversification helps reduce risk without requiring in-depth knowledge from you. Plus, these platforms automatically rebalance your portfolio over time to ensure it stays aligned with your goals.
4. Emotion-Free Investing
One of the biggest pitfalls of self-directed investing is emotion. Many investors buy high out of excitement and sell low in panic, undermining their long-term returns. Robo advisors follow a disciplined, rules-based strategy that removes emotional decision-making from the equation. This can lead to better investment outcomes over time.
The Case for Picking Your Own Investments
While robo advisors offer many benefits, some investors prefer to take control of their own portfolios. Managing your own investments can offer greater flexibility, potential for higher returns, and a deeper sense of involvement in your financial journey.
1. Greater Control and Customization
When you pick your own investments, you have complete control over every dollar you invest. You can choose specific stocks, sectors, or ETFs that align with your values (such as socially responsible investing), or focus on areas of the market you believe have strong growth potential. This level of customization is difficult, if not impossible, to achieve with a standard robo advisor.
2. Potential for Higher Returns
Robo advisors typically use passive investment strategies—buying and holding broad market index funds—because they’re proven to deliver solid long-term returns with low risk. However, actively managed portfolios or carefully selected individual stocks have the potential to outperform the market. While this approach carries higher risk and requires expertise, it may appeal to knowledgeable investors seeking alpha (excess returns).
3. Learning and Engagement
Managing your own investments can be a powerful educational experience. By researching companies, analyzing financial statements, and tracking market trends, you gain a deeper understanding of how markets work. This knowledge can benefit you in other areas of personal finance and give you confidence in making long-term financial decisions.
4. No Ongoing Service Fees
While robo advisors are relatively inexpensive, they do charge recurring fees. If you manage your own portfolio through a low-cost brokerage like Fidelity, Charles Schwab, or Vanguard, you can often invest for free—no management fees, no advisory charges. This can result in significant savings over time, especially as your portfolio grows.
Key Factors to Consider
So, how do you decide which path is right for you? Here are several factors to consider:
1. Time and Interest Level
Ask yourself: Do I enjoy learning about investing? Do I have the time to stay informed and monitor my portfolio? If you’re passionate about markets and willing to commit time each week or month, self-directed investing could be rewarding. But if you’d rather focus on other priorities—your career, family, hobbies—a robo advisor offers peace of mind.
2. Financial Goals and Complexity
Are your goals straightforward—like saving for retirement or building an emergency fund? A robo advisor can handle these well. But if your financial picture is complex—perhaps you have multiple accounts, tax considerations, or estate planning needs—you might benefit from more tailored strategies that require human insight (or at least hybrid advisory services).
3. Risk Tolerance and Discipline
Be honest about your emotional discipline. Can you stick to your investment plan during market downturns? If you tend to panic when the market drops, a robo advisor’s automated, emotion-free approach could protect you from costly mistakes. On the other hand, if you’re confident in your ability to stay calm and stick to a long-term strategy, managing your own investments may be feasible.
4. Investment Knowledge
If you’re new to investing, a robo advisor can act as a helpful guide while you learn the basics. As your knowledge grows, you might transition to managing more of your portfolio yourself—either fully or through a hybrid approach. Conversely, if you already have experience analyzing stocks or building portfolios, you may find robo advisors too restrictive.
A Middle Ground: The Hybrid Approach
You don’t have to choose one option exclusively. Many investors use a hybrid strategy: they allocate a portion of their portfolio to a robo advisor for stability and convenience while managing another portion themselves for greater control and potential upside. For example, you might use a robo advisor for core retirement savings while investing independently in individual stocks you’re passionate about.
Another option is using a “human plus robo” hybrid service, such as Vanguard Personal Advisor Services or Fidelity Go, which combine automated portfolio management with access to certified financial planners. These services often cost more than pure robo platforms but less than traditional advisory firms.
Final Thoughts
So, should you use a robo advisor or pick your own investments? The answer depends on who you are and what you value.
If you’re looking for simplicity, low fees, and a hands-off approach that still delivers solid long-term results, a robo advisor is an excellent choice. It’s a smart way to get started with investing and stay consistent over time.
On the other hand, if you’re eager to learn, want more control, and enjoy the process of researching and selecting investments, managing your own portfolio could be more fulfilling—and potentially more profitable, if done wisely.
Ultimately, there’s no one-size-fits-all solution. The best investment strategy is one that you can stick to consistently over decades. Whether that means trusting a robot, trusting yourself, or blending both, the key is to start investing early, stay diversified, and keep your long-term goals in focus.