Robo-advisors utilize algorithms and artificial intelligence to assess individual risk tolerance and build customized investment portfolios for users. They typically require users to fill out a questionnaire about their financial goals, risk tolerance, and investment horizon, and based on that data, the robo-advisor suggests a diversified portfolio composed of various asset classes. Many robo-advisors also offer rebalancing and tax-loss harvesting, enhancing the user's potential returns while managing risk. With lower fees and an accessible online interface, they have democratized investment management for retail investors.