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Do Any Robo-Advisors Focus on Downside Risk Protection?

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

Downside protection strategies for investing are in high demand. The 2018 markets shook 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 is rampant.

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 platform buys more shares in investments that have lost the most value. 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

Qplum – Downside Risk Protection

“As a trader, I was trained to think about risk management before I think of what to trade,” writes Mansi Singhal in a Quora post. Qplum comes at robo-advisor downside risk protection from a hedge fund viewpoint. Qplum considers risk protection as their primary focus.

Qplum offers a variety of investment portfolios, predominantly comprised of low fee exchange-traded funds. But that’s where the similarity with typical robo-advisors ends. The Balanced portfolio, Qplum’s most popular offering, owns more than 45 low fee funds from diverse stock, bond and real estate categories. This fund employs four investment strategies; trend-following, risk parity, machine learning and global macro. According to Qplum the four strategies combined are better than each approach individually.

For a flat 0.50% management fee of assets under management – AUM, this robo-advisor provides downside risk. The active management strategies trade in and out of cash based on a disciplined plan which is cheaper than buying options and limits emotional decision making. Qplum also manages your investments held in a TD Ameritrade or Fidelity account.


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

Read the Qplum Review and Interview with Mansi Singhal, Qplum Co-Founder

Go directly to the Qplum Website

Interactive Brokers Asset Management – Downside Risk Protection

Formerly known as Covestor, Interactive Brokers Asset Management 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 IB Asset Management 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 IBAM 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.

Go directly to the Interactive Brokers Website

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

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

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.

Updated; September 22, 2018

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Barbara A. Friedberg, MBA, MS

Barbara A. Friedberg, MBA, MS

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