My last career was as a financial advisor. I gave up my registration when I retired, so I give away advice, which I guarantee is worth what you pay for it!

There is such a thing as a great financial advisor who more than repays their fees in tailoring your portfolio to your future needs, risk tolerance, and tax situation. But these people are rare: many have migrated to managing hedge funds, and the good ones still in individual practice tend to be hard to find or only accept clients with very high net worth (upwards of $500K.)

So what is a middle-class person to do? You can roll your own low-cost strategy which beats 80% of advisors and managed funds by using low-fee index funds from a company like Vanguard– often one for global stocks and one for bonds. You set your preferred volatility level by choosing, for example 70% stocks and 30% bonds. Then you forget it — and once a year or so on a set date, rebalance by transferring as needed to maintain those percentages. This generally bumps up return slightly over a static strategy without a lot of trading or effort.

The Wall Street Journal has a story by Liz Moyer on new online services that do simple investment management for you at much lower cost than personal advisors (full story may be behind a paywall):

The Internet has threatened the livelihood of travel agents, video-store clerks and mail carriers. Now high-tech startups are aiming to put another profession on the endangered list: financial adviser.

A new breed of online advisers is using computer models available on their websites to tailor portfolios of inexpensive exchange-traded funds for individual investors and offering to manage those investments automatically.

The firms promise to save customers money by charging low management fees and avoiding pricey investment products. By contrast, traditional advisers and brokers develop personal relationships with clients but sometimes impose hefty management and investment fees.

The online advisers can be a good option for investors who want low-cost advice about the appropriate mix of stocks and bonds to buy and hold for the long term, and who are content to monitor their investments on a home computer or a mobile app.

Sachin Rekhi, who is 30 years old and lives in Menlo Park, Calif., was wined and dined by advisers from Wall Street banks after selling his software company. But he concluded he could get what he wanted from Wealthfront, the largest of the online startups in terms of assets.

“I wasn’t getting access to anything special from the traditional wealth advisers, and they were going to invest my money the same way,” says Mr. Rekhi, who opened an account with the Palo Alto, Calif.-based firm in 2012.

…

But “robo-advisers,” as they are sometimes derisively known, aren’t for everyone. Investors who prefer to hear a familiar, reassuring voice when markets gyrate may feel cast adrift. And those who face complicated tax or estate-planning issues may need to seek separate advice from a professional.

The firms—which also include Betterment, Personal Capital, FutureAdvisor, SigFig Wealth Management and Motif Investing—also can vary significantly in the amount of hands-on assistance they provide and in the services they offer.

Online advisers collect basic information from investors about how much risk they want to take and what they are investing for. The firms then use the information to create portfolios intended to match those profiles and goals, and often adjust those portfolios automatically in an effort to boost returns or curtail volatility.

…

Most online advisers were formed by veterans of large tech firms, and employees of tech firms are often a target audience. Together the online advisers, which manage $4 billion in assets, represent a tiny fraction of the estimated $17 trillion wealth-management market, according to Aite Group, a consulting firm based in Boston.

But they are growing fast, and have attracted high-profile backers. Wealthfront surpassed $1 billion in assets under management in June, about 2½ years after launching its website, and manages $1.25 billion now. Its chief investment officer is Burton Malkiel, whose book “A Random Walk Down Wall Street” is widely regarded as a classic by advocates of index investing.

Betterment, which is based in New York and manages $740 million, received a $32 million infusion in April from Citigroup’s C -0.12% Citi Ventures, Globespan Capital Partners and Northwestern Mutual Capital. In May, J.P. Morgan Chase, JPM -0.04% Goldman Sachs Group GS +0.12% and other investors put $35 million into Motif Investing, a San Mateo, Calif.-based firm whose board members include Sallie Krawcheck, a former Wall Street executive, and onetime Securities and Exchange Commission Chairman Arthur Levitt.

Low fees are central to the pitch. Investors often pay around 0.40% to 0.50% of assets annually—or $40 to $50 on a $10,000 portfolio—based on a typical management fee of about 0.25% of assets and ETF fees of 0.1% to 0.25%. By contrast, traditional advisers often charge 1% or more of assets, and sometimes recommend higher-priced investments that can further erode returns.

Online advisers often accept clients with relatively small amounts to invest, though some target investors with $100,000 or more in assets. The firms can appeal to a younger tech-savvy generation. Adam Nash, Wealthfront’s chief executive, says 60% of the firm’s clients are under 35, and 90% are under 50.

…

All three firms do most of the heavy lifting on an investor’s behalf. Bo Lu, a former Microsoft engineer who co-founded FutureAdvisor, got the idea for his website from fellow engineers who had money to invest but not enough to attract the attention of traditional advisers.

“They all wanted accounts of a million or a half-million [dollars] and we had, like, $8,000 to invest. We decided to build it ourselves.”

…

If stocks or bonds rally or drop significantly, Betterment automatically adjusts his account back to his baseline asset allocation, typically by directing dividends and new deposits into underweighted assets. The tactic, known as “rebalancing,” essentially pushes investors to buy assets that are relatively inexpensive, which can boost returns in the long run.

In addition, Betterment automatically sells some investments that have lost money to offset gains in other investments, which can limit his taxes on overall gains.

Wealthfront, too, automatically rebalances accounts with more than $10,000, and customers with at least $100,000 invested in taxable accounts also get automatic tax-loss harvesting. FutureAdvisor, which launched last year and manages about $200 million in assets, also provides both services.

Betterment and Wealthfront don’t charge investors for trading costs incurred while rebalancing. FutureAdvisor says investors may incur trading costs due to rebalancing, but that it only rebalances if the benefits for the investor outweigh the expense.

This stuff is hardly rocket science — which is why rocket scientists cleaned up by going into the investment field in the 90s. Automating portfolio managament isn’t tough — what’s hard to manage is client expectations; clients who aren’t ready to ignore gyrations in portfolio value and stay the course may need all the human support they can get. Otherwise they will trade out on declines and in on highs, and do worse than the market over time — as most do investors in stock mutual funds.