Throughout most of modern history, if you needed investment guidance, you had to hire a financial advisor. There are certainly benefits to having the advice of a seasoned professional, but there's one big drawback -- an investment advisor can be expensive.Now there's an alternative option: robo-advisors. Also referred to as robo-investors or robo-traders, these are platforms that allow you to put your investment strategy on auto-pilot. In this guide, we'll share our picks for the best robo-advisors and take you through the most important things you should know about robo-investing.

3 Featured Picks From Our Best Robo-Advisors

There are a lot of options to compare, even on this page. It can be overwhelming! If you're looking for a place to start, here are three robo-advisors our experts recommend and why they like them:

• SoFi Automated Investing: Low-cost robo advisor
• M1 Finance: Great brokerage for both banking and investing
• Acorns: Robo advisor for hands-off investing

How to choose a robo-advisor

Here are few things to look for during a robo-advisor comparison:

• Account type: Make sure the account type you want is offered by a robo-advisor.

Some key features are available through almost any robo-advisor, such as by using algorithms to design an appropriate investment portfolio, while other interesting perks aren't quite as common. Here are the main features you should pay attention to as you search for the best robo-investor for your financial goals.

Low fees

Robo-advisors are generally far cheaper than their human counterparts, but they aren't all equally cheap. There's quite a bit of variation in management fees and expense ratios but most fall into the "low cost" category.A quick look at our best robo-investing platforms shows management fees ranging from 0% to 0.35% or flat fees of $1 to $5 monthly. Many offer tiered pricing, so you can opt into a no-frills version or a premium product, depending on what you want to pay and which features you need.

Minimum deposit requirements

A deposit requirement could be a major limiting factor if you're just getting started or have limited funds available to invest.Most robo-investors come with far lower minimum deposit requirements than traditional brokerages, but the requirements vary a lot. Some let you open an account with as little as $1, and some require a minimum opening deposit of $500 or more.Generally, the minimum deposit requirement aligns with the investment goals the app is designed to help you achieve.

If you just want to play in the stock market to see what it's all about, a micro investment app can help you get started for $5. If you want to seriously stash away money to diversify your retirement savings, more advanced robo-stock advisors with a $500 minimum are more likely to offer the features you need.

Automatic rebalancing

When you set up an investment portfolio through a robo-advisor, your initial investment allocations (typically exchange-traded funds, or ETFs) will be aligned with your risk tolerance and investment goals. For a simplified example, your robo-advisor might determine that your ideal allocation is 70% invested in stocks and 30% in bonds.

Over time, those stocks and bonds shift in value, so your allocation shifts, too. A strong year for the stock market could push your portfolio to 80% stocks -- which puts it at a higher risk in case of a down year.Automatic rebalancing solves this problem by periodically reviewing your portfolio and moving money into different types of investments to maintain your target balance between risk and reward.Automatic rebalancing is a fairly standard feature among robo-advisors, but the frequency varies among platforms.

Tax-loss harvesting

Some of the best robo-advisors incorporate strategies to reduce your tax bill into their portfolios, and the most important to know about is tax-loss harvesting.

Here's the short version of how tax-loss harvesting works with a robo-advisor: Let's say that your robo-advisor constructed your portfolio using five investment funds. We'll also say that over the next few months, four of the funds perform very well, and one declines in value. In the course of rebalancing, your robo-trader will likely sell some of the high-performing funds.This can create a taxable capital gain. Some robo-investors actively combat this by strategically selling investments that have declined in value. That offsets your capital gains (because they sell at a loss), and they can re-invest the remaining capital.Tax-loss harvesting is most important if you invest large amounts or you're already in a high tax bracket. It's only a concern if you're investing in a taxable account, not tax-advantaged accounts like retirement plans.

Access to human financial advisors

By definition, the purpose of a robo-advisor is to take the human element mostly out of the investment management equation. And most of what a human investment advisor can do can be automated rather easily. Plus, robo-advisors remove the hassle of finding a financial advisor.

However, there are some instances where it can be valuable to have access to a human financial advisor. For example, if you're planning to buy a home in a few years or you want to start saving for college, a financial advisor can point you in the right direction.

Some robo-advisors eschew human advisors altogether, but some give you access with a premium membership or for a set fee per consultation.

Customer support

All robo-advisors offer some type of account support, though the level varies a lot. You might only be able to chat with customer service through messages in the app, on the website, or through email. Some hold customer service hours with agents available via phone. Look into those details before choosing an advisor if one-on-one support is important to you.

Unique features that appeal to you

It's not practical to list every possible feature a robo-advisor could offer or that might matter to you in particular. But it's worth noting that some of our favorite robo-advisors offer features that go beyond the standard list we've discussed. To name a few:

• Robo-advisors offered by major brokerage firms or banks often integrate with other accounts at the company. This can allow you to view your balances in one place and facilitate easy transfers between accounts.
• Some robo-advisors offer discounts on other products and services from the same company, such as lower interest rates on loans.
• If you want to invest through a combination of a robo-stock advisor and self-directed investing, there are several robo-advisors that allow you to do both through the same platform.
• Some robo-advisors offer unique services, like career or financial counseling, income planning for retirees, and in-person customer events. Features like these aren't likely to appeal to everyone but can be valuable to some people.

What is a robo-advisor?

"Robo-advisor," or "robo-investor," refers to any investment platform that automates key components of investment planning that were traditionally handled by a human advisor. They use algorithms to help design an age- and risk-tolerance appropriate investment portfolio using ETFs and mutual funds.A great robo-advisor can help you assess your risk tolerance, determine your investment time horizon and goals, and provide portfolio management over time to maximize return potential without too much risk.

Some investment apps use only robo-advisors, especially those geared toward micro-investing. Major online stock brokers tend to offer robo-advisors among their investment options to clients for free or low fees and provide access to human advisors for premium investment account holders.

Features and costs among robo-advisors vary significantly.

How does a robo-advisor work?

Robo-traders automate certain components of the investment planning process. Robo-stock advisors can assess your risk tolerance, determine your investment time horizon and goals, and allocate your investment portfolio to maximize return potential without too much risk.

How much does a robo-advisor cost?

Costs vary among robo-advisors depending on their features and the types of investors they want to attract. Robo-stock advisors are known for having lower fees than their human counterparts, but it's still important to know how much you'll pay to use a robo-advisor.There are two primary types of fees for most robo-advisors:

• Management fee: This fee gives you access to the robo-advisor's features and services. Management fees are expressed as a percentage of your managed assets on an annual basis, so a 0.25% management fee means that you'll pay $2.50 per year for every $1,000 invested. Not all robo-traders charge a management fee. Those that do typically range from 0% to 0.35%, and some charge flat fees (usually $5 per month or less).
• Investment expenses: The funds a robo-advisor invests your money into -- the same ones a human advisor would invest in -- often come with their own fees, called the "expense ratio." Like management fees, expense ratios are expressed as an annualized percentage of assets under management. Expense ratios can vary dramatically -- fees on exchange-traded funds used by the best robo-investors have expense ratios ranging from 0.03% to 0.90%, although the vast majority are on the lower end of this spectrum.

It's important to consider the combination of these fee types, often collectively referred to as the "all-in" cost of a robo-trader. All-in costs typically range from 0.03% to 0.50%, but even at the higher end, this compares favorably to hiring a human financial advisor, which might cost 1% to 3% in management fees.

Why are investment fees such a big deal?

The fees discussed above may sound small, but don't underestimate the difference they make over the long run. The same way your money grows through compounding interest, that growth can be held back by compounding fees.To illustrate this, let's say that you have $5,000 to invest and that you plan to add another $5,000 every year for the next 30 years. We'll say your portfolio achieves annual returns of 8% on average. Here's how you'd fare with these all-in fees:

Short term, the difference a fee makes is quite small. But over the long run, those seemingly small differences in fees make a big difference to your bottom line.After 30 years, your hypothetical investment would have earned nearly $69,000 more by using a low-cost robo-investor with a 0.25% all-in fee rather than a typical human financial planner with a 1% management fee.

Types of robo-investors

There aren't any official "types" of robo-advisors, but the idea of each kind is generally the same -- a robo-advisor will take your investment capital and create a portfolio that is appropriate for your age, goals, and risk tolerance. That said, I would divide robo-advisors into three general categories:

• Traditional brokers: These are brokers that offer traditional investment capabilities, like the ability to buy stocks and mutual funds, but also offer robo-trading products for customers who want to automate. Schwab and Fidelity are examples in this robo-investing category.
• Pure robo-advisors: These are companies that were created for the primary purpose of automating the investing process. Betterment and Wealthfront are examples.
• Fintech companies: Fintech is short for financial technology. These are tech-focused companies that offer a range of financial products, including robo-advisory services. SoFi is a good example of this.

Is a robo-advisor right for you?

Robo-investing is most appropriate for investors who fit into one or more of the following groups:

• Newer investors: Investing for beginners can seem intimidating. If you don't have a ton of money to invest or you don't have the level of knowledge to be comfortable making your own investment decisions, a robo-advisor can help you get started with a custom-designed portfolio and minimal capital.
• Hands-off investors: Many people who know the basics simply don't want to spend their time researching and managing investments and could benefit from a program robo trading on their behalf. Robo-stock advisors can allow you to put your investments on auto-pilot, and at a cheaper cost than hiring an advisor.
• Tax concerns: If you're investing a large amount of money or you have a high income, the tax optimization strategies offered by some robo-traders can easily justify the management fees all by themselves.
• You don't like fees: As we've seen, lower investment fees can make a big difference over time. If you're concerned with paying too much for investment advice, a robo-stock advisor could be the solution for you.

How to get started with a robo investor

The exact procedures and features depend on the specific robo-advisor, but generally speaking, here are the basic steps you can take to get started with the best robo-investing platform for you:

1. Fill out an account application and provide the required personal details. You'll likely be asked to provide your Social Security number and you may need to sign tax forms.
2. Answer some basic questions to help the robo-advisor determine how to best invest your money. These typically have to do with your age, when you want to retire, investment goals, and risk tolerance.
3. Transfer your initial deposit into your account and/or set up a recurring deposit. Once the money is in your account, the robo-advisor will do the rest.

Robo-advisor Methodology