What we do for you and what we recommend you do during market downturns

Making your investment more stable

The most important thing is what we do before market downturns.

This is directly related to the design of our diversified investment portfolios (funds or ETFs).

Investing can be compared to planning a long trip.

You can take a winding, bumpy road, or choose a more stable and predictable highway. While the former may seem exciting, most investors prefer a smooth, steady ride (without scares), especially if we’re talking about a long trip. The same goes for long-term investing.

To achieve this, we diversify. Combining different asset classes helps reduce the impact that a single poor performance of any of them can have on your portfolio. At inbestMe, our standard diversified portfolios (whether index funds or ETFs) are built with a strategic mix of assets—in short, equities from the main macro regions and global bonds—to provide stability to your portfolio and cushion the downturns of individual asset classes.

The following chart illustrates the performance of these assets individually since 2017, compared to a diversified portfolio of Profile 7 index funds (our average investor profile).

The following shows how the inbestMe profile 7 climbs to the top positions most years.

As you can see, our standard portfolios avoid the sharp declines that individual asset classes often experience. That’s one of the reasons why, despite the ups and downs of the past seven years, our portfolio 7 (our average investor profile) has achieved a compound annualized gross return (CAGR) of 6.5% at the end of 2024 after deducting fees, well above the return (+4.5 percentage points) of investment funds in the corresponding category in Spain (according to Inverco).

On a cumulative basis, the average investor in inbestMe has accumulated 66.6% or 49% more than the indicated reference (from 1/1/2017 to 31/12/2024).

Constant monitoring and fine-tuning of our portfolios

At inbestMe, we believe that indexing, through index funds or ETFs, is the most efficient strategy for most portfolios. By replicating index results and keeping costs low, indexing creates efficient portfolios for our clients.

We prefer to call what we do index management (also known as passive management).

This means that although we use indices (index funds or ETFs, as the case may be) as the primary instrument in our diversified portfolios, they are designed and overseen by the inbestMe committee. inbestMe is a Robo Advisor, an automated manager, but comprised of people, a significant portion of whom are experts in portfolio management. This means that, while all repetitive processes that don’t add value are automated, our portfolios undergo constant analysis and reflection by our live investment committee.

This doesn’t mean constantly modifying the portfolios; we don’t believe it’s efficient. But it does involve analyzing whether the portfolios are in the best position to achieve the best results for the medium to long term.

This has led to our portfolios being optimally positioned on other occasions, for example, anticipating fixed-income declines in 2022.

After an exhaustive analysis and a period of deep reflection, inbestMe’s investment committee decided to maintain an underweight position in US markets. This decision was based (beyond the technical issues that justify it) on a detailed study of current conditions and future prospects, which suggested a risk situation due to the high valuations in this market. At the same time, the committee decided to maintain an overweight position in Europe, motivated by the stimulus plans that have awakened the continent. The committee also considered it appropriate to maintain some coverage in the Euro/Dollar pair.

This asset allocation has led to our diversified index fund portfolios demonstrating significantly higher performance at the close of the first quarter (January 1, 2025 to March 31, 2025) compared to those of other robo-advisors in Spain, as evidenced in the attached table.

The average returns of our portfolios (-0.01%) exceed those of Indexa Capital (-1.5%) by 1.4 percentage points and those of MyInvestor (-4%) by 3.9 percentage points. It’s worth noting that all our portfolios have achieved better results, and in some cases, these differences exceed 2 percentage points compared to Indexa and 4 percentage points compared to MyInvestor.

The investment committee will continue to monitor the portfolios as usual and will make additional decisions if necessary.

But there is much more included in our automated portfolio management service that should reassure you, even in this complex environment.

Let’s recall again some of the details of our service and how they help you in downturns.

Automatic, tax-efficient rebalancing

Our portfolios are automated and rebalanced periodically. It’s during periods of decline, when there are significant and uneven movements across asset classes, that the algorithms are automatically activated and adjust inbestMe’s portfolios.

This means, in other words, “buying low and selling high.”

For example, if the weighting of equities has recently fallen below its target (and that of fixed-income assets has increased), fixed-income assets are sold and equities are bought. In index fund portfolios, this is done through transfers, thus avoiding paying taxes on capital gains.

These rebalancings, in addition to maintaining the portfolio’s risk level, optimize profitability (because of the “buying low and selling high” principle).

Tax optimization

ebalancing in ETF portfolios is also performed in these portfolios.

Since there is no transfer in ETFs, this must be done by selling and buying ETFs.

To ensure this is efficient, even in these portfolios, inbestMe’s intelligent tax optimization is activated.

During periods of decline, this algorithm maximizes its results.

This is what inbestMe does, and from here on, what we recommend you do.

Recurring contributions

We believe that recurring contributions to your investment plans are the best way to achieve your goals. For two reasons: the most obvious is that you’ll be increasing your investment, but the less obvious is that you’ll be removing your discretion from the equation. In other words, you’ll eliminate the emotional factor from your investment process.

For clients who do this, this means they’re going on autopilot, especially those who have activated the goal simulator (see below).

Furthermore, from a psychological perspective, it helps them overcome downturns, as they know they’re also buying more cheaply during these periods.

Alternatively, during times of stock market sales, you can decide to make opportunistic additional contributions: but you’ll have to accept that it’s very difficult, if not impossible, to get the minimum right, and the panic that grips the markets will probably block you. Or, have you even considered it these days?

If you decide to do this, one piece of advice: don’t use all your gunpowder at once because you probably won’t get the timing right. If you split your shots at the end, it’s similar to scheduling recurring contributions, which again is generally the best solution.

Getting stuck in panic is the worst thing you can do.

Reflect on your risk profiles and your goals

When the markets fall, it can be a good time to reflect on our risk profile.

Can we really tolerate so many falls to achieve our goals?

Do they allow us to sleep peacefully?

Is our financial planning well designed?

Do we have money in our checking account and/or in a savings portfolio (or a deposit) well-sized to cover our emergency fund (remember, it should cover at least 3 to 6 months of expenses)?

This task is your responsibility. These are very personal reflections that only you can decide.

Without haste, once the volatility has passed, reevaluate your goals and risk profiles.

We require you to do this once a year, and this should be more than sufficient. We also try to improve the way we profile our clients so that they don’t take on more risk than seems reasonable.

Some of our clients complain; they see it as a hassle, and sometimes they want to force profiles for which they are not truly prepared. In any case, this is the best time to reflect on these issues without the pressure of what’s happening in the markets.

Activate the Goal Forecaster

At inbestMe, we firmly believe in goal-based management.

Recently, our team developed and launched the “Goal Forecaster,” our tool that allows you to clearly define the name of each goal, a target amount, and a desired date for achieving it for each portfolio. Using this tool, the simulator will tell you whether or not you are on track and what actions you should take to achieve your goals.

By activating the Goal Simulator, you can take your investment to the next level by focusing on what you can control: your time, your savings, and the complete systematization of your investment.

You’ll be activating the ultimate driving assistant for your investment journey, and you should forget about bumps in the road (market volatility), as knowing whether you’re “aligned” or “not aligned” with your goal will be your guide.

There will always be bumps in the road and volatility in the market.

There is no diversification strategy that can completely eliminate market volatility. It is inherent to stock markets and justifies the “risk premium,” the return we earn over risk-free assets (Treasury bills).

It’s normal to feel anxious during market downturns; we are investors too, and we understand the uncertainty of these times.

We trust that you can navigate these periods of volatility with greater serenity by understanding our portfolio construction and monitoring processes. Remember that you have activated automated tools such as rebalancing, tax optimization, and automated recurring contributions.

We recommend activating all the available mechanisms, such as recurring contributions and the goal simulator, so that your portfolios and investment plans have the best chance of being achieved.

If you use all of this, you don’t need to do much more: most of it is on our side.

Continuing with the travel analogy, activating all the driver assistance systems makes driving more comfortable and restful, and certainly a little safer.

If you’re a Plus customer, remember that you can always schedule a conversation with your personal manager to discuss any needs you may have.