Your feedback is essential to help us improve - click here to take our 3 minute survey.

Is robo-investing good?

Is robo-investing good?
Image source: Getty Images.


Robo-investing has grown in popularity over the past few years. In 2020, it was estimated that robo-funds were used to manage a hefty $460 billion, and this figure is almost certain to grow in the future.

But is robo-investing a good thing to do? Or is it better to stick with traditional investing methods? Let’s take a closer look.

What do robo-investors do?

Robo-investors automatically invest your money, for a fee. They work by allocating you a personal portfolio, likely composed of a mix of shares and bonds, based on your attitude to risk.

Your risk attitude is determined by the answers you give to questions posed when you first sign up for an account.

Robo-investors are straightforward to use and are available from a number of providers, including Nutmeg, Wealthify and Moneyfarm. Check out our full list of top-rated robo-advisors in the UK to find the right one for you.

How does robo-investing differ from other investing methods?

Before the introduction of robo-advisors a decade ago, if you wanted to invest, you had to bury your head in company reports to choose stocks and shares yourself. Otherwise, you had to go to a financial professional who could manage a fund for you.

A robo-investor simplifies both of these options in that you don’t have to choose stocks yourself and you also don’t need to meet with a human advisor. Not sure whether a robo-advisor can meet your specific needs? See our article on whether robo-advisors can replace financial advisors.

However, it is worth knowing that some traditional investing giants, such as Hargreaves Lansdown, now give the option of investing into ready-made portfolios via their own platforms. These services are often low-cost and cheaper to use, so don’t automatically assume that a robo-advisor is the best way to automatically invest.

See our list of the best share dealing accounts for more options.

Is it good to use a robo-investor?

While robo-investing may not be the absolute cheapest way to invest, it has a number of plus points.

1. Fees are transparent

Perhaps the most obvious draw of robo-investing is the fact that the fees are clear. Usually, you’ll pay a percentage of what you invest and that’s it.

Traditional investing methods, on the other hand, are likely to hit you with platform charges as well as fees for buying, selling and transferring your funds. Annual management fees are common too.

2. They’re easy to use

It’s harder to think of an easier way to invest than to use a robo-investor. To invest, you simply download an app, answer some questions so it can allocate you a portfolio, and that’s it! To check your investments, you can log into the app. With traditional investing services, app-based investing is less common.

3. You don’t need any investing knowledge

If you’re new to investing or you lack the will to learn, then robo-investors provide an easy way to invest.

The same can’t be said with traditional investing services, where you really need to learn the types of investments you’re getting involved in.

4. You can often earn cashback

An often-overlooked advantage of robo-advisors is that a number of them offer cashback when you first sign up. This can be a boon if you’re a little uneasy about the value of your investment going down, as the cashback can minimise the risk of you losing out.

See our recent article for more benefits of using a robo-advisor.

Robo investing: What else should I know?

As with all investing, remember that with robo-investing the value of your portfolio can go down as well as up.

While a robo-investor can try to determine your appetite for risk, it’s best not to rely on this 100%. Try to take the time to understand what you’re investing in and manage your return expectations. 

On another note, remember that robo-advisors will almost always allow you to open an account within an ISA wrapper so you can invest tax free. To learn more about this, see our top-rated Stocks and Shares ISAs in the UK.

Rated 5 stars out of 5 by The Motley Fool UK

Trade UK shares for just £2.95 and US shares for just $3.95 — with no platform fee!

The FinecoBank* Multi-Currency Trading Account offers UK investors highly competitive share-dealing rates across 26 global markets. Open your account using promo code TRD500-ML and during your first 3 months you can trade without incurring commission charges – up to a total commission amount of £500. (Terms and conditions apply.)

*Affiliate Partner. Important information and risk disclaimer: The value of shares and any income produced can fall as well as rise, and you may get back less than you invest. Exchange rate fluctuations can reduce the sterling value of any overseas holdings.

Was this article helpful?
YesNo

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.