With giant discount brokerage Charles Schwab launching its Intelligent Portfolios service this past week, the fledgling industry of automated investment advice is going mainstream.
Like the startup “robo-advisers” that preceded it, including Betterment of New York and Wealthfront of Palo Alto, Calif., Schwab can provide its service at low cost because the money isn’t touched by human hands.
A traditional broker or investment adviser would meet with you face-to-face and put your money in individual stocks, bonds, mutual funds or other securities. Robo-advisers, on the other hand, prompt you to fill out an online questionnaire. They then use software to generate and monitor a portfolio of exchange-traded funds, those low-cost investment bundles that are built to mimic the return of a market index rather than to try beating it.
Robo-advisers will automatically rebalance your portfolio if a rise or fall in the market skews how much money you have in any of the funds relative to the targets originally set for you.
They will also fine-tune the tax efficiency of the portfolio by selling some shares that have gone down during the tax year to offset gains elsewhere, for example.