What is robo-investing, and should you do it?

Here's a breakdown of what robo-investing in, how it works and whether nor not you should use a robo-advisor to build an ASX share portfolio.

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Robo-investing (sometimes also called robo-advice) is a term you may have come across over the past year or 2. It's a rather poor choice of name in my view, but it has stuck nonetheless, and so here we are.

Its proponents will tell you that robo-investing is a cheap, easy and effortless way of investing that can tailor a portfolio for your needs. Its detractors might call it fee-laden snake oil, and question whether it's appropriate for its target market (individuals who want passive, hands-off investing).

So who's right? Well, that's what we'll try and answer today.

What is robo-investing?

Robo-investing refers to an investment service that builds a custom-made portfolio of passive investments – usually exchange-traded funds (ETFs) – depending on a client's age and risk profile. It has attracted the 'robo' name because of its hands-off approach. A platform offering robo-investing is typically digital and automated. It will not usually involve you speaking to a financial advisor or even a human.

So using ETFs, the platform will construct a portfolio for you.

If you're a younger investor, a typical robo-portfolio will include a high allocation to 'growth assets'. This is usually a mixture of ASX shares, international shares and perhaps property.

In contrast, if an older investor with a 'less-risk' profile came along, a robo-platform would instead construct a more 'balanced' portfolio, mixing shares with defensive assets like bonds, cash and perhaps gold.

In both cases, the robo-investor will do all of the work for you, reinvest dividends and perhaps rebalance the portfolio from time to time – all while you carry on living your life and not worrying about how your investments might be tracking. Some even offer 'automated' investment plans that might, for example, direct-debit you $20 a week to put towards your portfolio.

Sounds good, right?

Are robo-platforms a good idea?

I don't have a problem with the concept of robo-investing, per se. I think it can be an easy and relatively fun way of investing your money, particularly if you aren't partial to dabbling in the markets yourself. And I also think there's a lot of merit for a 'set-and-forget' approach to investing that using a robo-advisor can foster.

However, not all robo-investing platforms are equal. Some might charge you usurious fees. A 1% or even 0.5% fee might sound cheap, but it adds up to a lot over time and can prove rather expensive seeing as you can always just invest in individual ETFs yourself.

Foolish takeaway

If the concept of robo-investing appeals to you, then, by all means, go for broke and run with it. But make sure you shop around for the best platforms that offer a reasonable price. There are many out there that simply charge too much for my liking.

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