Robo-Advisors have become quite popular recently, especially among younger investors due to their lower costs as well as minimum investment. They are algorithm-based financial advisors that do not have any human management involved. They automatically invest in a basket of goods that suits your risk profile (based on a survey which you will have to fill up) and helps you balance your investment portfolio constantly. It is a form of passive investing and requires little to no work on the side of the investor.
Cost
Robos are generally cheaper, especially if you only have a small amount to invest constantly but you still want to have diversification in your portfolio. They tend to charge management fees ranging from 0.3%-1% per annum based on the value of your portfolio.
The alternative to achieve diversification with a small amount of money is mutual funds, but mutual funds tend to have higher management fees of about 2.5%. Mutual funds are basically professionally managed funds that are organized by a fund manager and their goal is to beat the returns of the stock market. As there is human management in such funds, they tend to charge higher management fees that may eat into your returns.
Minimum Investment
One of the perks of using Robo-advisors is that many have very low barriers to entry. This means that the minimum investment that is needed is very low and some may not even have a minimum amount to start with. This appeals especially to investors who have a lower capital to invest. ROBOs such as Stashaway and Syfe do not have a minimum amount to start with and you can invest with as little as $5. However, there are also other ROBOs such as Autowealth ($3000) or DBS Digiportfolio ($1000) that requires a minimum amount to start.
Diversification
Robos invest in a very diverse basket of goods that can include ETFs, Bonds, REITs, and Commodities etc. according to your risk profile. It is a relatively safe investment compared to buying shares of a single company. Your investment portfolio is diversified according to the investment objectives of the Robo-Advisor. The different Robo-advisories may focus on different industries/ countries and you would still need to do your research to understand what they invest in before entering the market. For example, Syfe is more focused on REITs while DBS Digiportfolio is focused more on index funds such as the STI and S&P 500 in their portfolio.
Drawbacks
However, there are also some drawbacks when it comes to using ROBOs. Firstly, it lacks the human management portion as there is no professional fund manager that is constantly observing the market and making decisions based on the daily fluctuations. It is mostly passive and tracks the particular index it is invested in. Thus, the returns may not be as attractive compared to actively managed funds.
Secondly, the costs tend to add up over the years. As your investment portfolio grow over the next 10-20 years. The cost also adds up as it is charged as a percentage of your total portfolio value. Hence a portfolio with $100,000 may see an annual charge of $1,000 assuming the fees is 1%. Thus, portfolio with higher values will see a much higher management fee annually. It may not seem great annually, but over the years these fees add up and may actually eat into a lot of your returns compared to the lower cost of managing you personal portfolio through a trusted broker.
Conclusion
Robo-advisors are attractive to young adults due to their lower costs as well as minimum investment amounts. It is also very diversified and the risks are lower compared to owning individual stocks. I would recommend Robos for people who have <$500 to invest each month to take advantage of the lower cost and lack of commission fees for monthly investments. However, if you are looking at investing amounts >$2000 each month, there are many other avenues where you can look at to increase your investment returns while facing lower costs such as managing your own portfolio.
Furthermore, you may not be agreeable with the risk profile proposed and you cannot adjust the weightage of the investments within the portfolio once invested in the Robo. Thus, if you prefer to have some form of active management in your portfolio, robo-advisors may not be suitable for you.
Wealth Wrangler 
above 2k each month can u give example of what other avenues ?
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Hi Xian,
Other avenues other than ROBOs you can try are:
1) Creating your own brokerage account e.g. Poems, DBS Vickers to manage your own portfolio (e.g. STI ETFs, Blue chip stocks like DBS/ OCBC)
2) Exposure to US stocks through brokerage account (e.g. NASDAQ QQQ, S&P 500 ETFs)
3) Mutual Funds (but take note of higher management fees)
4) REITs
Basically, with a capital of greater than 2k/ month, the commission fees you pay for brokerage is generally lesser and in the long run translates to lower costs for you. I would recommend that you continue to invest 500/ month in ROBOs and the remaining 1.5k you can create a brokerage account and invest directly in local stocks such as the STI ETF (ES3) or Global stocks such as the S&P 500 ETF or QQQ. You can also do this once every 2 months to reduce to commission fees that you are to the broker. E.g. saving up the 1.5k for 2 months and investing it as a lump sum of 3k every 2 months.
Do let me know if you need any other advice!
Cheers,
Wealth Wrangler
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