Robo advisors are gaining in popularity amongst investors but what’s the first year of investing like with a robo advisor? The initial process starts off with a risk quiz to measure your risk profile. The robo advisor will then ask you a few additional questions before you can make your first deposit. Take a look at what happens during your first year with your robo advisor.
How Robo-advisors Actually Work 🧩
Robo-advisors assign your assets in either stocks or bonds. They mostly buy low-cost, low-fee ETFs. It controls your asset allocation when the amount sways away. It may run tax-loss harvesting in taxable accounts. You select an investment goal and level of risk, connect a bank and set up regular contributions. The algorithm takes care of the dull yet crucial bits so you remain consistent.
Onboarding Checklist (day 0–7) ✅
- Select whether to open a taxable brokerage account or Roth/Traditional IRA or rollover an older 401(k) account.
- Risk assessment: time horizon, comfort with volatility, and capacity for loss – recommended mix (for example, 70/30).
- There are many options to fund your account: through ACH link, one-time transfer, recurring deposit, or ACATS transfer from another brokerage.
- Here are some features you can turn on or off: dividend reinvestment, tax-loss harvesting (only taxable), cash sweep, recurring schedule.
- If you name your goals, whether it’s a retirement target or a down payment, they’re more likely to stick.
This Changes Each Month and When
Month 1 — funding & first allocation 🚀
- We purchase the ETF basket of your risk levels, when you make your deposit.
- You’ll likely get fractional shares – and a little cash.
- Set your recurring deposit (paycheck day is easiest).
- If you possess a taxable account, opt in/out tax-loss harvesting (TLH) right now.
Months 2–3 — first rebalance & dividends 🔄
If the markets move, the 70/30 could drift to 73/27. When drift thresholds are triggered, the system trims or adds to restore them back to the target.
Dividends will start coming in, and you will automatically reinvest them to increase your share count.
You’ll see simple performance reports vs a reference mix.
Months 4–6 — dialing in your routine 🧭
- You can make a goal deposit at any time and reposition your risk if your timing changes.
- TLH can take advantage of market volatility to capture losses in taxable accounts which will be created for you to use at filing.
- Use asset location to your advantage. Put higher income earning assets (bonds/REITs) in an IRA and broad stock ETFs in a taxable account for maximum tax-efficiency lowering your tax burden.
Months 7–9 — optimization & behavior guardrails 🧠
- Take a look at your savings rate.
- Are you able to sleep well with this risk level? If not, nudge down one notch—consistency beats bravado.
- Turn off extra cash sweeps unless you really want a buffer so as not to create cash drag.
Months 10–12 — year-end & taxes 📑
- You’ll receive a 1099-DIV/INT/B for taxable accounts but not for IRAs.
- TLH summary appears (for your tax software/CPA).
- Max out your IRA contributions and set an increase for next year.
- Quick rebalance check; verify beneficiaries and bank link.
What robo-advisors do well vs where you still decide ⚖️
They do well
- Discipline (automated rebalancing & reinvestment).
- Diversification via broad ETFs.
- Tax hygiene (TLH, lot management) in taxable.
- Interface & nudges to keep you contributing.
You still decide
- Savings rate (the main driver of outcomes).
- Risk level you can live with.
- Account mix (taxable vs IRA/Roth; rollovers).
- When to raise/lower risk after life changes.
Picking a risk level you’ll actually keep 📊
Conservative investment bias if your goal is 0–3 years away.
- 5 to 10 years equal balanced which is 50 to 70 and 30 depending on stomach.
- Over the past ten plus years, the possibility of multi-year growth has increased significantly in many companies. This is due to the drastic improvement from 70/30 to 90/10 with 90% of deals undertaken being growth oriented.
- If a typical down year would compel you to cease contributions, you are too aggressive in your investment strategy. Drop one notch.
Cost anatomy (know the all-in number) 💵
Advisory fee is usually a low yearly % of assets or a flat subscription.
No matter how small, always try to add ETF expense ratios.
When your robo has cash, this non-investment will reduce returns because it incurs opportunity cost.
- All-in cost example (illustrative): Advisory fee 0.25% + ETF fee 0.06% + average cash drag of 2% = total drag above market returns.
- Try to reduce unneeded cash and make fees low.
- The more affordable the better as long as the essential features you want are included.
Tax-loss harvesting (what it does & doesn’t do) 🧾
This process lets you offset capital gains/ordinary income to some extent and defer tax.
- Doesn’t: When processed, free returns shift taxes in time.
- Don’t DIY trade the same or “substantially identical” ETFs in another account – it can void your tax-loss harvesting (TLH). Make sure the tickers you are using are clearly different across all accounts. Alternatively, you can pause TLH until your DIY moves are over.
Common mistakes (and the fix) 🧯
- Chasing performance: Switching risk after a sudden jump. Fix: pre-commit to your band.
- Shutting off deposits: The machine stops working, results too. Fix: even $50/biweekly matters.
- Separate your do-it-yourself ticker symbols for acquisitions if you have lesser known tickers, or turn off tax-loss-harvesting.
- Don’t be a cash drag! Fix this by opting out of the extra cash unless you really need it!
- Make sure to review your beneficiaries each year and after any major life events.
A simple first-year playbook (copy this) 📋
- If you meet the requirements, start a Roth/Traditional IRA as well as a regular taxable account.
- For each goal, choose a risk level; accept the suggestion or nudge it one notch.
- Set recurring deposit on payday; add 1% every quarter.
- Enable dividend reinvestment; decide on TLH for taxable.
- Add a 3-paycheck month rule (extra goes to investments).
- Check drift and fee the first half of the year, then adjust savings.
- At year-end it’s time to top off your IRA, download tax forms, check your beneficiaries and plan your auto-increase for next year.
Quick comparisons you’ll care about 🆚
| Feature | Robo-Advisor | DIY Indexing |
|---|---|---|
| Rebalancing | Automatic at drift | Manual (calendar/band) |
| TLH (taxable) | Automatic (if offered) | Manual—requires discipline |
| Behavioral guardrails | Strong | Depends on you |
| Cost | Low, but not zero | Lowest if you’re diligent |
| Time/effort | Minimal | Some setup & upkeep |
In reality, this tiny fee is often worth it because automation helps keep you loyal and frequent.
Tips, Tricks, Hacks & Local Secrets 💡
- Auto-increase deposits each raise by 1–2%. You won’t feel it.
- If your checking account has a round-up feature, send the round-ups to your robo weekly.
- Inside the app, type your goal: “Early Retirement ’37,” “Down Payment ’28.”
- There are just two reviews: a mid-year review and a year-end review. More checks = more temptation.
- A safety net outside of the robo: Maintain 3 to 6 months in a high-yield savings so you never sell ETFs for emergencies.
- Choose Roth for higher-growth sleeves, which have tax-free upside over time. Choose Traditional for more stable income sleeves, since they are tax-deferred.
- If your robo advisor has direct indexing optional and also your balance is bigger and it can boost TLH opportunities that is worth it for some taxable investors.
FAQs — Robo-Advisors: What to expect during your first 12 months
What can I expect from a robo-advisor in the first month?
The first twelve months will still be the period where we can expect a lot of trade occurrences. Normally, when your allocation strays outside of set bands or on a periodic review – it’s all automatic.
Do robo-advisors automatically reinvest dividends?
Sure, dividend reinvestment is generally the default option, which makes it easier to increase share count.
Will my robo-advisor do tax-loss harvesting in year one?
If you have the option and you’re in a taxable account, it can harvest losses when things are volatile, creating loss lots for filing.
What fees should I watch for with robo-advisors in year one?
You might pay an advisory fee, ETF expense ratios, and face potential cash drag if the service parks some extra cash.
Can I change my risk level after starting?
Yes; you can adjust any time. Try to avoid frequent changes—pick a level you can keep for the next 12 months.
Should I open a taxable or IRA account first?
Use workplace match first. Then IRAs for tax advantages. Use taxable for overflow or nearer-term goals.
Can I use a robo-advisor for short-term goals (under 3 years)?
Consider lower-risk options or cash; short timelines may not fit market risk well.
How do recurring deposits help in year one?
They keep the plan moving through ups and downs. Let the robo rebalance to target—stay the course and keep contributions flowing.
Do robo-advisors beat DIY returns in year one?
Returns depend on markets and allocation. Robos help reduce behavior mistakes and maintain discipline.
How do I avoid wash sales with TLH?
During the 30-day window around a harvested loss, don’t buy substantially identical ETFs in your other accounts.
Is direct indexing worth it in the first 12 months?
If your taxable balance is large enough for meaningful TLH and you accept some extra complexity, it can be.
What’s a good first-year benchmark?
Compare to a similar-risk blended index (e.g., a 70/30 mix), not to headlines or single indexes.
Can I pause deposits if cash is tight?
Yes, but restart ASAP. Even small auto-purchases keep habit and progress alive.
Do robos offer human support?
Most provide chat/email support; some add human planners for a fee—use them when life events hit your plan.
How do I prep at year-end?
Download 1099s (taxable), top off IRAs, review allocation, and set next year’s auto-increase on deposits.
Final thoughts 💬
During the first year of using a robo-advisor, you can expect it to be boring — and that’s a good thing! Decide how much you are willing to risk, automate deposits, allow for reinvestment, and let it rebalance while you live.
Try to review your finances twice each year. Keep fees/cash drag low. Use year-end to tidy up taxes and top up. In this way, quiet, compound-powered growth becomes automatic.
