Guide to Understanding and Tracking Robo-Advisor Returns

By Michael Flannelly · April 19, 2023 · 6 minute read

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Guide to Understanding and Tracking Robo-Advisor Returns

Robo-advisors — which provide algorithm-generated portfolios to help individuals manage their money — can deliver a range of returns for investors, just like any investment. The fact that these platforms are automated doesn’t mean they provide predictable returns.

Robo-advisors are only automated in the sense that they use sophisticated technology to manage basic portfolios, typically composed of exchange-traded funds (ETFs) or other low-cost investments.

The underlying funds in a robo portfolio are the same or similar to those that regular investors can purchase on their own, thus investors still need to consider the impact of gains and losses, taxes, and fees when thinking about returns.

How Robo-Advisors Help Investors

A robo-advisor is an automated, algorithm-based service that typically offers investors a questionnaire to assess their risk tolerance, time horizon, and investment goals. Based on the investor’s inputs, the automated platform suggests a portfolio that, ideally, matches the investor’s goals and preferences.

Robo-advisor algorithms typically employ some of the principles of modern portfolio theory (MPT) and other quantitative techniques that establish and manage a range of pre-set portfolio options. Investors generally have a choice between more aggressive or more conservative portfolio allocations, but they typically cannot alter the makeup of an automated portfolio (unless that’s a feature specifically offered by a certain platform).

The algorithms used by robo-advisors are often updated to reflect changes in the market, and most rebalance on a regular cadence (e.g. annually) to maintain the desired asset allocation.

Robo Advisor Tools

Robo-advisors may also offer tools to help investors make decisions about their finances. These can include portfolio analysis tools, risk tolerance assessment tools, and educational resources. Investors can use these tools to monitor their portfolios and make informed decisions.

Robo-advisors typically charge an advisory fee for their services, usually a percentage of the total portfolio value. However, the fees are generally much lower than those traditional financial advisors charge.

The goal of robo-advisors is to provide a low-cost and convenient investing option to a wide range of customers, including those who may not have the resources or desire to work with a human, financial advisor.

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Evaluating Robo-Advisor Performance

Evaluating the performance of a robo-advisor is critical for investors interested in using them to build wealth. Although some robo services claim to have proprietary algorithms based on investment theories developed by Nobel Prize-winning economists, these formulas simply inform the technology on the backend; they don’t guarantee a certain return or performance.

An investor should evaluate robo-advisor performance by considering its historic returns and other key metrics. By assessing the following metrics, investors can better understand the robo-advisor’s performance and how it aligns with their investment goals:

•   Cost: The annual cost to invest with a certain robo advisor is one of the most important factors influencing returns that investors can control.

Robo advisors are generally lower cost than, say, working with a live financial advisor. But automated services charge annual advisory fees, in addition to the expense ratios of the investments in the portfolio. Because fees eat into returns over time, it’s always important to know what the costs are up front.

•   Returns: It may be useful to compare the rate of return of a robo-advisor’s portfolios to those of relevant benchmarks. For instance, investors can look at the returns of their robo-advisor portfolio versus the S&P 500 Index returns. If the robo-advisor performs better than the S&P 500, it may indicate a well-run robo-advisor.

However, past performance is not predictive of future results, but it can provide a general idea of how the robo-advisor’s investments have performed over time.

•   Diversification: Evaluate the diversification of the robo-advisor’s portfolios within and across different asset classes. Portfolio diversification can help manage risk by spreading investments across different types of securities.

•   Rebalancing: Investigate how often and how the robo-advisor’s portfolios are rebalanced and how frequently the underlying investments are reviewed.

•   Customer Service: Check if the robo-advisor provides access to a human advisor or customer support, as this can be an important factor if you need help or have questions.

What Is the Average Robo-Advisor Return?

The average return for a robo-advisor portfolio can vary depending on several factors, such as the portfolio’s specific investments (i.e. its allocation), the robo-advisor’s investment strategy, and overall market conditions.

In general, robo-advisors tend to invest in low-cost index funds and ETFs, which often track the broader market. Therefore, a robo-advisor portfolio’s returns may be similar to a mix of comparable index funds minus any advisory fees charged by the robo-advisor, plus the fees of the underlying funds.

💡 Recommended: ETFs vs Index Funds: Differences and Similarities, Explained

Nonetheless, returns can vary widely depending on the robo-advisor and the portfolio. For example, as of December 31, 2022, the 5-year annualized trailing return for robo-advisors with portfolios with a 60/40 allocation ranged from 2.84% to 5.12%, according to The Robo Report by Condor Capital.

Robo-Advisor Returns

Below are the returns of some robo-advisors compiled by Condor Capital’s The Robo Report. The returns shown in the table are of portfolios with a 60% stock and 40% bond asset allocation, after fees, as of December 31, 2022. All returns for periods longer than one year are annualized.

Robo-Advisor 5-Year trailing returns
Acorns 3.04%
Ally Invest 3.29%
Axos Invest 4.18%
Betterment 3.24%
Charles Schwab 3.15%
E*Trade Core 3.47%
Ellevest 3.75%
Fidelity Go 4.49%
Merrill Edge Guided Investing 3.99%
Personal Capital 4.04%
SoFi 4.13%
Vanguard P.A.S. 4.06%
Wealthfront (Risk 4.0) 5.12%
Zacks Advantage 4.76%
Source: The Robo Report by Condor Capital Wealth Management, as of 12/31/22

Understanding Robo-Advisor Fees

Understanding the different kinds of investment fees associated with robo-advisors, and how they compare to other investment options is critical for investors.

Investment fees are often expressed as a tiny percentage, e.g. 0.25% or 0.50%. But over time fees eat into a portfolio’s returns, making it harder for investors to build wealth. Analyzing robo-advisor expenses will help investors to determine if the robo-advisor is a cost-effective solution for their investment needs.

Note that all investment costs should be spelled out clearly for the investor.

•   Advisory Fees: This is the fee charged by the robo-advisor for managing the investor’s portfolio. It is typically a percentage of a portfolio’s assets under management and many robo-advisors charge less than 0.50%. Some robo-advisors offer fee-free options to their clients.

•   Expense Ratios: An expense ratio is the fee charged by the underlying funds in the portfolio, such as ETFs. It is expressed as a percentage, ranging from 0.05% to 0.50% or more. Some robo-advisors include low-cost ETFs with expense ratios under 0.10%.

•   Account Minimums: Some robo-advisors may have minimum account balance requirements. A minimum account balance means investors must deposit a certain amount to open an account, which can be a headwind to opening an account if the investor starts with a small amount of capital.

•   Commissions: Some robo-advisors charge a commission when buying or selling securities, while others do not.

•   Other Fees: Some robo-advisors may charge additional fees for services such as tax-loss harvesting or closing an account.

Pros and Cons of Robo-Advisors

Robo-advisors are often appealing to many investors because of their hands-off nature. However, as with any financial product or service, there are pros and cons to using a robo-advisor.

Pros and Cons of Robo-Advisors



Relatively low cost Limited personalization
Convenient, and easy to use Limited or no access to personal advice
Diversification Fewer investment options
Automatic rebalancing Minimum balance requirements can limit access to certain features

The pros of using robo-advisors include the following:

•   Low cost: Robo-advisors typically have lower fees than traditional financial advisors, making them an attractive option for people who want to invest but avoid paying high fees. Some robo-advisors charge as little as 0.25% of assets under management, while traditional financial advisors may charge 1% or more. This can make a significant difference over time, especially for people with smaller portfolios.

•   Convenience: Robo-advisors are available 24/7 and can be accessed from anywhere with an internet connection, which makes it easy for people to manage their investments. This convenience can be especially beneficial for people with limited time to manage their investments.

•   Diversification: Robo-advisors use algorithms to create diversified portfolios with a mix of different index funds and ETFs in various asset classes, which can help investors reduce risk and improve returns.

The cons of using robo-advisors include the following:

•   Limited personalization: Robo-advisors use algorithms to create portfolios, which may not take into account an individual’s unique financial situation or goals. A lack of personalization can be a problem for people with complex financial situations or who have specific investment goals that a robo-advisor may be unable to accommodate.

•   Insufficient access to human advice: Investors may prefer to speak with a human advisor for financial advice and guidance. While some robo-advisors provide access to a financial advisor to help investors, these services can be limited or dependent on a minimum balance. As such they may not meet the needs of some users.

•   Fewer investment options: Some robo-advisors may have limited investment options compared to traditional financial advisors or a self-directed brokerage account. For instance, robo-advisors tend to invest in ETFs rather than individual stocks. If an investor wants to put money into a specific stock or asset, they may want to open a self-directed brokerage account in addition to a robo-advisor portfolio.

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Can Investors Lose Money With Robo-Advisors?

As with any investment, investors can lose their money with robo-advisors.

There are some precautions that investors can consider when weighing different robo-advisors. The industry is still growing, and computer-generated financial advice may not meet all their needs. In addition, face-to-face meetings can help consumers better understand their financial profile and investment risks.

Also, if a robo-advisor shuts down, consumers may be forced to sell or accept a possibly unrelated replacement service.

Why Do People Use Robo-Advisors?

People use robo-advisors because they are often cheaper than traditional financial advisors, provide a more objective approach to financial decision-making, and offer greater convenience when managing investments.

Investors who are comfortable with the underlying technology that these services use may appreciate having certain investment chores automated for them.

For example, some robo-advisors will automatically rebalance the portfolio according to the investors’ risk tolerance, and investment goals. This ease of rebalancing can help investors maintain their desired risk level and ensure that their portfolio stays aligned with their investment goals.

Additionally, some robo-advisors use automated tax-loss harvesting to help investors minimize their tax liability. Tax-loss harvesting is a technique that involves selling investments that have lost value to offset capital gains from other investments, which can help reduce the amount of taxes you owe. SoFi does not offer automated tax-loss harvesting.

Investing With SoFi

Robo-advisors are a relatively new type of investment service that use algorithms and technology to create and manage portfolios for investors. In recent years, robo-advisors have become increasingly popular as more and more people look for low-cost, convenient ways to invest their money. This has lowered the barrier to entry for many individuals, including younger people, to start investing.

If you’re interested in using a robo-advisor to help you build your portfolio, SoFi can help. With SoFi Invest® automated investing, we recommend a portfolio of exchange-traded funds (ETFs) for you based on your goals and risk tolerance. We’ll rebalance your investments regularly, so your money is always invested how you want it to be. And SoFi doesn’t charge an advisory fee.

See why SoFi is this year’s top-ranked robo advisor.


Do robo-advisors work?

Robo-advisors can be effective tools to help people manage their money and achieve their financial goals. Robo-advisors are generally cheaper and more convenient than traditional human financial advisors. However, it is important to research each robo-advisor to insure it is the best fit for your needs, and that you’re comfortable with what a robo platform can and cannot do.

What are the differences between a robo-advisor and a financial advisor?

Robo-advisors are usually less expensive than financial advisors. Robo-advisors typically have lower advisory fees and minimum deposit requirements, while financial advisors often require a minimum deposit and charge a percentage of the assets they manage. Another difference is that robo-advisors provide automated and algorithm-based advice, while financial advisors provide personalized advice and guidance tailored to individual needs and goals.

Are robo-advisors good for retirees?

Robo-advisors can be a good option for some retirees because they can provide a low-cost, automated way to manage investments. However, if a retiree wants more personalized advice or help with tax and estate planning, there may be better options than a robo-advisor.

SoFi Invest®
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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For additional disclosures related to the SoFi Invest platforms described above please visit
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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