3 Signs a Robo-Advisor Isn't the Best Choice for You

Robo-advisors aren't always the best investing option.

Robo-advisors have become increasingly popular in recent years for good reason. They provide a hands-off solution by offering investors a managed portfolio with smaller fees.

Instead of a financial advisor picking investments, and charging a small fortune to do so, robo-advisors use algorithms to decide on an appropriate mix of assets for each investor. But they do charge a small fee to put their customers' money into diversified portfolios appropriate for their needs.

If you don't want to manage your own investment account or pay a hefty fee for personalized advice, it may make sense to choose a robo-advisor. But, for many people, this actually isn't the best choice.

If you aren't sure if a robo-advisor is right for you, watch for these three signs that investing elsewhere could be a better bet.

1. You want to keep investment fees as low as possible

While the fees a robo-advisor charges are generally pretty low, the fact remains that you are still tacking on an added investment cost. And even very small fees can add up to a substantial sum that eats away at your returns when you're investing over the long term.

If you're really focused on minimizing fees so you can keep more of your hard-earned money, you may want to steer clear of a robo-advisor and invest with a discount broker instead.

Most brokerage firms have eliminated the fees they used to charge for buying and selling assets -- and also have no minimum balance requirements or inactivity fees. If you're comfortable doing the legwork to pick your own investments, you can avoid the added costs of a robo-advisor by going with an online brokerage firm instead.

2. You prefer to manage your own investments

Robo-advisors take the management of your portfolio out of your hands. You usually answer a series of simple questions and then the advisory service chooses what assets you buy.

If you're interested in researching investments on your own or developing a personalized plan based on your individual risk tolerance, you may not like this streamlined approach that leaves you out of the picture.

While this is often what attracts people to robo-advisors, it's not a good fit for those who would rather be in charge of their own investments -- instead of entrusting their wealth-building efforts to others.

3. You want to invest in stock shares of individual companies

Robo-advisors generally distribute your money in a mix of exchange-traded funds (ETFs). This means you take ownership of many companies that track a financial index or give you exposure to a specific class of assets.

Each ETF spreads your money around quite a bit. So you often don't have much of a chance of outperforming the market since too many of those assets would have to outperform.

On the other hand, if you buy shares of individual companies, you're taking on more risk but you also have the potential to earn higher returns that could help your wealth to grow faster. You can't do that with a robo-advisory service, though. You'd need a brokerage account that provides more flexibility in what you can invest in.

To be sure you're making the right investing choices -- and maximizing your chances of earning the returns you need -- be sure to watch for these three signs when deciding if a robo-advisor is right for you.