Robo-Advisors vs Self-Directed
Robo-advisors automate investing for a fee. Is the convenience worth it, or should you manage your own portfolio?
What Are Robo-Advisors?
Robo-advisors are automated investment platforms. You answer questions about goals and risk tolerance, and they build and manage a portfolio for you. Popular options include Betterment, Wealthfront, and Schwab Intelligent Portfolios.
Quick Comparison
| Factor | Robo-Advisor | Self-Directed |
|---|---|---|
| Annual cost | 0.25-0.50% | 0% (fund fees only) |
| Time required | None | 1-2 hrs/year |
| Rebalancing | Automatic | Manual |
| Tax-loss harvesting | Often included | DIY |
| Control | Limited | Full |
| Best for | Hands-off investors | DIY enthusiasts |
Popular Robo-Advisors
Betterment (0.25%)
- Tax-loss harvesting
- Automatic rebalancing
- Goal-based planning
- No minimum
Wealthfront (0.25%)
- Tax-loss harvesting
- Direct indexing at $100K+
- Financial planning tools
- $500 minimum
Schwab Intelligent Portfolios (0%)
- No advisory fee (but requires cash allocation)
- Rebalancing and tax-loss harvesting
- $5,000 minimum
- Access to Schwab ecosystem
The Real Cost Difference
On $100,000 portfolio over 30 years (assuming 7% returns):
- Self-directed (0.03% funds only): $761,225
- Robo-advisor (0.25% + 0.03%): $711,425
- Difference: ~$50,000 more with self-directed
When Robo-Advisors Make Sense
- You won't do it yourself. A robo is better than not investing.
- Behavioral guardrails. Robos prevent panic selling.
- Tax-loss harvesting value. Can offset some of the fee.
- True hands-off. You never want to think about it.
When Self-Directed Wins
- You enjoy investing. Even a little interest makes DIY easy.
- You want full control. Choose your exact funds and allocation.
- Large portfolios. 0.25% on $1M = $2,500/year.
- You understand the basics. Index funds + rebalancing isn't hard.
The DIY Alternative
Self-directed investing can be incredibly simple:
- Open account at Fidelity/Schwab/Vanguard
- Buy VTI + VXUS + BND (or a target-date fund)
- Rebalance once per year
- Done
Total time: 2 hours per year. Total cost: 0.03-0.07% in fund fees.
Hybrid Option: Target-Date Funds
Target-date funds (like Vanguard Target Retirement 2055) provide robo-like automation at near-index-fund costs. They automatically rebalance and shift to bonds as you age.
Cost: ~0.12-0.15%. No advisory fee. True set-and-forget.
The Bottom Line
Robo-advisors are fine—they invest in the same index funds you'd buy yourself. The 0.25% fee is reasonable for true automation.
But if you can spend 2 hours per year on your investments, self-directed wins on cost. The basics aren't complicated: buy index funds, rebalance annually, stay the course.