How Robo-Advisors Handle Market Crashes in Canada

Market volatility is an unavoidable part of investing. While long-term investors expect occasional ups and downs, sudden market crashes can still be unsettling, particularly if you are saving for retirement or investing. Many Canadians experienced this firsthand during the pandemic-driven turbulence of 2020 and the market swings seen throughout 2025.

For those investing in a robo-advisor, a question that might have crossed their mind has been the performance of these platforms in tough market conditions. While robo-advisors cannot prevent losses when markets decline, they are designed to help investors stay disciplined, diversified, and focused on long-term growth. Here’s how robo-advisors in Canada handle market downturns in 2026.   

What Is a Robo-Advisor? 

A robo-advisor is a web-based investment platform that automatically creates and manages your investment portfolio. Once you answer a few questions regarding your financial objectives, investment timeline, and risk tolerance, the platform generates a diversified portfolio, which is usually composed of low-cost exchange-traded funds (ETFs).

Here are some of the most popular robo-advisors in Canada for 2026:

• Justwealth
• Wealthsimple Managed Investing
• Questwealth Portfolios (Questrade)
• RBC InvestEase
• BMO SmartFolio

The platforms are regulated by appropriate Canadian authorities and aim to make it easy and affordable for new and experienced investors to get involved in investing.

One of the greatest benefits is cost. The typical robo-advisor charges between 0.2% and 0.7% per year for management fees, and will include relatively low ETF expenses. This is substantially lower than some of the fees associated with many traditional mutual funds, though investors often weigh robo-advisors vs DIY ETF investing in Canada to see if managing a portfolio manually saves even more.

What Happens During a Market Crash?

One of the misconceptions is that robo-advisors can protect investors from market downturns. However, in reality, there isn’t any investment strategy that is completely immune to market crashes. Losses may vary from modest declines in conservative asset portfolios to more substantial declines in aggressive growth asset portfolios, depending on your risk profile and asset allocation.

The difference lies in how robo-advisors respond. Robo-advisors operate on an investment strategy rather than relying on human emotions like many individual investors would during times of uncertainty. This automation is a core reason why robo-advisors avoid emotional investing in Canada, successfully mitigating the risk of making expensive investment mistakes like panic selling.

How Robo-Advisors Manage Market Volatility

1. Automatic Portfolio Rebalancing

One of the most crucial features of a robo-advisor is automatic rebalancing, which is a feature they would use during market downturns. When markets move significantly, your portfolio’s asset allocation can drift away from its intended target. For instance, if the stock market dips significantly, while the bond market remains relatively stable, your portfolio can become more conservative than you had intended.

An automatic rebalancing feature on robo-advisors will sell off overweight assets and buy underweighted assets. By removing the need for manual intervention, this disciplined process can drive the investors to “buy low and sell high”.

2. Risk-Based Asset Allocation

Each individual robo-advisor portfolio is designed to be based on a specific risk profile. Conservative investors will typically have a higher allocation to bonds and fixed income investments, while growth investors will have greater exposure to equities.

Portfolios are customized at the outset to align with the investor’s risk tolerance, helping them better position themselves to handle market downturns without making emotional decisions. Some platforms may also make modest adjustments to portfolio allocations while maintaining long-term investment objectives.

3. Tax-Loss Harvesting Opportunities

There are several robo-advisors that offer tax-loss harvesting for taxable accounts. In times of market downturns, investments that have lost value can be sold to realize capital losses. The losses can then be used to offset current or future capital gains, thereby lowering an investor’s tax liability.    

The returns are generally reinvested in other similar investments to maintain market exposure while complying with Canadian tax regulations. This approach does not eliminate losses, but can enhance after-tax returns over time.

4. Encouraging Long-Term Investing

One of the greatest strengths of robo-advisors is that they help to keep investors focused on the long haul. History has consistently shown that markets recover from downturns, although recovery timelines can vary. Investors who attempt to time the market often miss the strongest rebound periods, which can significantly reduce long-term returns.

By maintaining a disciplined investment approach and reducing emotional decision-making, robo-advisors help investors stay invested through both market highs and lows. Many providers also offer access to human advisors who can provide guidance and reassurance during periods of uncertainty.

Tips for Canadian Investors

When choosing a robo-advisor, be sure to keep these best practices in mind:

• Consider the platform that aligns with your investment objectives and preferences.
• Be realistic about your risk appetite before investing.
• Make regular contributions using dollar cost averaging to help reduce the impact of volatility; a strategy made highly flexible by the best robo-advisors in Canada for irregular income earners.
• Don’t watch your portfolio every day when times are turbulent.
• Ensure your provider is regulated in Canada; however, if you hold American accounts or are interested in foreign platforms, look into getting started with U.S. automated investing safely.

Final Thoughts

Market crashes are never pleasant; however, they are a normal part of investing. While robo-advisors are not a guaranteed safeguard against negative outcomes in down markets, they may be a great way for Canadian investors to stay disciplined, diversified, and patient through the storm.

Robo-advisors are a convenient option for investors who want to keep their money invested over the course of the market cycle, particularly those seeking a low-cost, hands-off approach. These platforms can help eliminate the emotional aspect of decision-making and keep your plans on track so that you don’t get swayed by what the markets are doing at any point in time.