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Most people do well with simple balanced portfolios with about 40 per cent in bonds and 60 per cent in stocks, which provide a happy medium between risk and reward.

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Norman Rothery is the value investor for Globe Investor's Strategy Lab. Follow his contributions here and view his model portfolio here.

Providing good advice to investors that have relatively little money has always been a tricky affair. After all, the price of a good adviser can be too high for those of modest means. In practice, small investors find themselves left to their own devices or paying through the nose for the little advice they can get.

Robo-advisers try to address this underserved segment of the market by, largely, cutting out the expensive human advisers and serving up advice via computer programs.

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At the moment, the advice they offer is a shadow of that provided by good investment advisers who act as fiduciaries to those with large accounts. But it might not be too far removed – and perhaps even superior – to the sales job that frequently masquerades as investment advice from non-fiduciaries.

Simple asset allocation, implementation, rebalancing and monitoring are at the heart of what robo-advisers do today. It's a service that in many ways is similar to that offered by balanced mutual funds, apart from some asset allocation customization and a few other tweaks.

Asset allocation is typically determined via client interviews and questionnaires. The idea is to try to figure out a client's capacity and willingness to take on risk. Each client's risk-reward profile is then used to sort them into one of a handful of suitable model portfolios.

This is where a set of rules, or an algorithm, comes in. The idea is to make sure that conservative little old ladies, and gentlemen, stick with GICs, bonds and other predictable investments. On the other hand, aggressive wrinkle-free investors might be best served with stock-heavy portfolios. Or at least that's the general idea.

But it's a balancing act because assets with high expected returns usually come with a good deal of risk while low-risk investments often offer little in the way of return. Generally speaking, investors should hold a combination of assets that have the best expected returns that they can stick with through several market cycles.

Most people do well with simple balanced portfolios with about 40 per cent in bonds and 60 per cent in stocks, which provide a happy medium between risk and reward. Those who are more risk averse can ratchet up their bond holdings (at the expense of expected returns) while risk seekers can opt for more stocks.

The precise asset allocation decision appears to be complicated, but it doesn't have to be and, for experienced investors, it's generally not worth paying money for.

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If you haven't figured out the best allocation for you, look up the Vanguard Investor Questionnaire online and take their test for free. It will provide a suggested stock-bond split depending on a series of 11 questions.

Once you know a good allocation, head on over to adviser Dan Bortolotti's blog at CanadianCouchPotato.com, and click on "Model Portfolios," which contains low-fee model portfolios based on index funds or exchange-traded funds that are suitable for self-directed investors.

(If in doubt, select a slightly lower risk portfolio than indicated because most people become more risk intolerant than initially expected during bear markets.)

For instance, his balanced ETF portfolio holds 40 per cent of its money in the BMO Aggregate Bond Index ETF (ZAG), 20 per cent in the Vanguard FTSE Canada All Cap Index ETF (VCN), and 40 per cent in the iShares Core MSCI All Country World ex Canada Index ETF (XAW). All for a blended annual fee (MER) of just 0.14 per cent. That's far lower than a tenth the fee of many regular balanced funds and well below the cost of robo-advisers. (Low-fee funds or robo-advisers should be considered by those of very modest means.)

Building a simple balanced portfolio of index funds isn't rocket science and picking one that fits your risk profile is relatively straightforward. Unless you have money to burn, it doesn't make sense to pay for something you can easily do yourself.

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