A. Robo-Advisers provide low cost and computer-generated advice to help investors develop a diversified portfolio, they could even perform portfolio rebalance and conduct tax harvesting.
However, are robo-advisers fit for people in or near retirement? To answer this question, we need to first understand the risks and limitations of robo-advisers' services.
Portfolio Risks and LImitations
If you have a large size portfolio and only consider switching part of it to a robo-adviser, it's important to make sure there is an adviser that helps you maintain a holistic view of your entire portfolio.
In addition, if you switch portion of your current portfolio, depending on which robo-adviser you would use, some of them (e.g. Wealthfront) use ETFs to construct portfolios for their clients, that means you probably have to incur capital gain tax as you have to sell your current portfolio before the switch, while others (e.g. Vanguard) can help their clients manage existing portfolio and recommend new funds to complement the current portfolio.
Finally, it's important to know the limitation of the services of the robo-advisers. For example, Vanguard Personal Advisor services only recommend Vanguard funds, FutureAdvisors don't include any municipal bond funds (a miss for investors in high tax brackets).
In our next blog post, we will continue the discussion of robo-advisors' risks and limitations.