What are the benefits of a robo-advisor?
Source: Getty Images  If youre a stock market novice, a robo-advisor offers an automatic way to invest. Compare stocks and shares ISAs If youre planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, weve created a list of some of the top stocks and shares ISAs. The role of a robo-advisor  In the old days, if you wanted to invest your money you had two options. You could pay for a finance professional to manage your wealth, or research and choose investments yourself. In these modern times, robo-advisors introduce a third option to the mix. Also known as automatic investment tools, robo-advisors automatically invest for you based on your attitude to risk. For example, when signing up for a robo-advisor, youll be asked a few questions to establish your investing preferences. Should you appear risk averse, youll likely be allocated a high number of government bonds. This is because bonds are less prone to big falls. In contrast, if your answers portray you as more of a risk-taker, youll be allocated a lot more shares than bonds. These are more volatile but offer higher potential returns in the short term. Robo-advisors have the ability to rebalance your portfolio too. This means that you dont have to worry about holding too many bonds over stocks (or vice-versa), which could impact your risk allocation. On this point, its worth reading more about the benefits of a balanced portfolio. The key benefits of a robo-advisor  A robo advisor has a few key benefits. 1. It can be good for newbies  A robo-advisor is one of the easiest ways to test the choppy waters of the stock market. This is a boon if you lack in-depth knowledge of investing. See our investing basics page for more information. With a robo-investor, you simply sign up, answer a questionnaire and your artificially intelligent advisor will do the work for you. This means you dont have to worry about making investing decisions yourself, or investing in assets that dont suit your attitude to risk. These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold. To help you side-step these pitfalls, and move forward on your path to wealth-building, weve created a free report, The 3 Worst Mistakes New Investors Make. Just enter you best email below for instant access to your free copy. Click here! 2. Fees are transparent  A robo-advisor clearly lists the fees that you will pay for using the service. This is usually a percentage of the amount you invest. This means that you wont have to work out the costs of any management fees, trading or platform costs. 3. You can invest tax free  If you use a robo-advisor theres nothing to stop you putting your investments into a Stocks and Shares ISA. This allows you to access your returns tax free. The drawbacks of using a robo-advisor  As well as benefits, robo-advisors have their fair share of drawbacks too. Firstly, even if you use a robo investor, theres a chance you could lose money. Stock markets can go down as well as up, so never invest more than you can afford to lose. Remember, even a low-risk portfolio comprised mostly of government bonds can decrease in value. Another drawback of robo-funds is the fees involved. While the costs you pay will be transparent, for the lowest fees possible, it may be better to invest in a multi-asset fund instead. Multi-asset funds also allow you to invest in a mix of stocks and bonds, without needing to choose investments yourself. The final drawback is that robo-advisors dont allow you to choose your own investments because of the way in which they work. While you may not consider this a drawback, many prefer having control of their portfolio by choosing what to invest in. If that sounds like you, see our list of share dealing accounts. Opening an account with a robo-advisor  Robo-advisors are available from a number of providers, including Nutmeg, Wealthify and Moneyfarm. For more providers that offer automatic investing services, see our page on investing solutions. Get a free initial review lasting up to 1 hour, plus 50 off any follow-up advice. MyWalletHero has sourced you a 50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through Unbiased.co.uk*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free  use the Unbiased matching tool. Find an adviser now! *This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here. About the author Karl Talbot