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Do Any Robo-Advisors Focus On Downside Risk Protection?

Last Updated on February 8, 2022 by Barbara A. Friedberg, MBA, MS

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable

5 Robo-Advisors with Downside Risk Protection – Investment Management for Turbulent Markets

Downside protection strategies for investing are in high demand. The 2018 market tumble and the 2022 decline are shaking investors out of their complacency. The largest DOW point drop ever occurred on February 5th 2018 and tested the nine year bull market. Since then, volatility has increased, amid another 3 year bull market.

Most traditional robo-advisors work like this. Investors select their risk tolerance, from conservative to aggressive, the robo creates an investment portfolio with low-fee index funds and rebalances regularly. When markets tank, instead of selling, the robo-advisory platform buys more shares in investments that have lost the most value. This is called rebalancing. The diversified portfolio is designed to temper losses as under-performing assets are offset by winning investments.

The typical robo-advisor might not be enough for active investors seeking downside risk protection. If you want a robo-advisor that focuses on downside protection strategies, instead of the standard approach, there are a few platforms to check out.

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The active investing robo-advisors go beyond the traditional approach, focus on downside risk protection, and actively trade to minimize losses in an effort to beat the market.


M1 Finance – Downside Risk Protection

M1 Finance is unique in the robo-advisory space. You can invest in premade investment portfolios or create your own. Whichever path you choose, the platform rebalances your investments. The beauty of M1 Finance, for those seeking to beat the markets, and protect against downside risk, is that you can follow the investments of professional investors.

If you want to try the hedge fund strategy of Green Light Capital, Tiger Global Management, Icahn Capital, Pershing Square or more, you select the pre-made portfolio. M1 Finance rebalances this portfolio quarterly to align with the published holdings of the investment firm.

The cherry on top of this investment sundae is that it’s free. You can invest in pre-made or personally selected investments and never pay a management fee or trading commission. And, it M1 only requires $100 to get started. Although, unlike some of the upcoming active robo-advisors that trade frequently, the M1 portfolios are updated quarterly and do not respond immediately to market movements but to the style of the fund manager.

Read the M1 Finance Review

Go directly to the M1 Finance Website

Robo Advisers with downside risk protection - maybe. Robo advisors seek to save investments from market crashes

Personal Capital – Downside Risk Protection

Personal Capital’s Wealth Management offers automated plus hands-on personalized financial planning. The robo-advisor uses a unique investment methodology based on sector and style weighting. They have risk minimization built into their model. Their approach is not “one size fits all” but is customized for your specific situation and goals.

Personal Capital differs from other robo-advisors through it’s equal sector weight portfolio. The company back-tested this theory and assumes that the Smart WeightingTM tactical equal sector weight portfolio will outperform the weighting in the S&P 500. Personal Capital explains that by limiting exposure to any one sector or style, you are better protected against losses in a down market.

The $100,000 minimum investment amount is designed for the mass affluent client. Although anyone can sign up for the free Personal Capital Investment Management toolkit. The Personal Capital Advisors client, benefits from a Certified Financial Planner, downside protection strategies, tax-efficient investing plus a digital advisor and sophisticated wealth management tools. The fees begin at 0.89% and decline to 0.49% as asset levels increase.

Read the Personal Capital Review

Go directly to the Personal Capital Website

Interactive Advisors – Downside Risk Protection

Formerly known as Covestor, Interactive Advisors offers 61+ distinct portfolios that are each managed by a professional money or hedge fund manager. The managers trade their own money in their brokerage accounts and Interactive Advisors automatically replicates their trades for their clients within seconds using proprietary “co-trading” technology.

From the list of total available portfolios, there are several that specifically focus on downside risk protection. The Global Downside Protected Portfolio is internationally focused and managed by Atlas Capital. The strategy avoids riskier sectors and goes all into the markets during good times. This portfolio also manages foreign exchange rate risk. The fee is 0.75% and requires a $20,000 minimum investment for this portfolio.

The Ivy 5 Downside Protected portfolio is managed by Financial Freedom Management and copies the approach of large Ivy League endowment funds. This portfolio invests in US and foreign equities, fixed income, real estate and commodities. This strategy requires a $15,000 minimum investment and charges 0.75% AUM.

Other active strategies are available that incorporate risk protection as well. The Interactive Advisors annual management fees range from 0.08 to 1.25% and investment minimums begin at $5,000. Help is available from licensed client services reps based in Boston’s financial district via phone, text, Skype, email or live chat.

Read the Interactive Advisors Review

Go directly to the Interactive Advisors Website

Validea Legends Advisor – Downside Risk Protection

Validea Legends Advisor borrows investment strategies from historical investing geniuses and robo-izes them. According to the website, Validea is a “digital advisor that invests using the strategies of ten Wall Street Legends.” Validea mimics the  investment strategies of the top investors that have outperformed the market, over long periods of time.

The platform’s proprietary model removes emotion from investing and follows a disciplined system that utilizes quantitative stock selection and asset allocation models. The firm actively invests in market corners which offer the greatest value.

Their downside risk protection uses endowment fund strategies with uncorrelated asset classes to improve risk-adjusted returns. The firm uses a market rotation system to reduce exposure to higher risk investments, when losses are expected. Their approach also works to temper exposure to highly valued asset classes.

With a minimum $25,000 investment amount, this platform isn’t for the small investor. They charge a 0.25% management fee and report that total management fees range from 0.53% for the conservative portfolio to 0.80% for the aggressive portfolio. These all-in fees include the underlying ETF fees and all trading commissions.

Go directly to the Validea Legends Robo-Advisor website

Merrill Edge Guided Investing – Downside Risk Protection

The Merrill Edge Guided Investing robo-advisor attempts to beat the market returns, not just match them. This Merrill robo-advisor, from parent company Bank of America practices a tactical asset allocation model.

Merrill uses diversified low fee ETFs and begins with a specific risk-tolerance based asset allocation, like most robo-advisors. Here’s where Merrill Edge Guided Investing can offer downside risk protection. Managers shift asset allocations according to their analysis of future asset class returns. That means if they believe emerging markets will outperform next year, they’ll bulk up the allocation to that asset class. This makes the Merrill robo-advisor more nimble in responding to current market news as well as future projection.

The fees tend to be on the high side, as would be expected for an actively managed robo-advisor. The basic service charges 0.45% AUM, while the Merrill Guided Investing with access to a financial advisor costs 0.70% AUM.

Real the Merrill Edge Guided Investing Review

Go directly to the Merrill Edge Guided Investing website

Downside Risk Protection Robo-Advisor Takeaway

If you’re an investor seeking an active robo-advisor or automated investment approach that strives to protect your capital from losses, investigate these digital approaches. The fees are lower than most traditional human financial planners and there are several approaches to choose from. Many have back-tested data to help compare the active returns with a typical robo-advisory approach.


Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.

Empower compensates Stocktrades Ltd (“Company”) for new leads. Stocktrades Ltd is not an investment client of Empower.

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Barbara A. Friedberg, MBA, MS

Barbara Friedberg, MBA, MS brings decades of finance and investing experience to Robo-advisor Pros. She is a former investment portfolio manager and taught Finance and Investments at several universities. Barbara Friedberg's published work includes Personal Finance; An Encyclopedia of Modern Money Management (Greenwood Press), Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio and How to Get Rich; Without Winning the Lottery. Follow her on twitter