October 9, 2018

Swell Investing Review: Is It Good?

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Are you looking for a robo-advisor with a socially conscious mind? You may have found it with Swell Investing. This robo-advisor promises socially responsible, hands-off investing. Does it deliver what it promises?

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Swell Investing lets you invest through socially responsible companies. It has six portfolios:

  • Renewable energy
  • Green tech
  • Clean water
  • Disease eradication
  • Zero waste
  • Healthy living

Each has between 30 to 60 individual stocks. You choose the one that fits your beliefs. Swell handles the rest. Keep reading to learn how.

Did You Know? Swell is a relatively new company, but its financial service company parent, Pacific Life, was founded in 1868. Its portfolios span the spectrum of socially responsible investing.

How Does Swell Investing Work?

Swell doesn't hold your investments. Instead, you open a brokerage account at Folio Investments. Swell serves as the advisor of this account.

In other words, you fund the account and choose the portfolios that mean the most to you. Swell manages your investments.

You'll find one major difference between Swell and other robo-advisors. Rather than choosing a portfolio based on your risk tolerance, you'll select from their six available portfolios.

You can eliminate up to three stocks from each portfolio. And you're free to choose how you allocate the portfolio.

Sign up with Swell by providing some personal identifying information and answering a few questions. They'll help Swell decide if you are a good fit for their portfolios.

The questions pertain to your:

  • Current assets
  • Desired timeline
  • Ability to handle risk

Once you sign up, link your checking or savings account to the brokerage account. You are now free to start investing.

Is Swell Investing Safe? Investing always involves some level of risk. But your investments are protected if Swell Investing or Folio Institutional goes out of business.

This protection is offered by the SIPC insurance, which protects your investments up to $500,000.

Who Is Swell Investing Best For?

The socially conscious investor is a good candidate for Swell Investing. But you also have to be a hands-off investor since you won't actively manage your funds.

Once you choose your portfolio and fund your account, sit back while Swell handles your investments. You can request changes as you see fit, but a majority of the work is done by the company.

Did You Know? Swell Investing primarily targets millennials. With a low minimum investment, younger adults can start investing, putting their dollars to work changing how the world works.

What Are the Fees?

Swell charges 0.75% of your assets under management per year. The average robo-advisor charges 0.25% per year.

But Swell provides a niche service - they only offer socially responsible portfolios, something only a few other robo-advisors offer exclusively.

How Do You Pay the Fee? Swell typically keeps 0.25% of your account balance in cash. While cash drag might seem like a waste of a potential investment, they do it to help you in the long run.

Swell uses the cash to cover your advisory fee. If they didn't keep the cash, they would have to sell stocks each month, which could hurt your portfolio.

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Reasons We Like Swell Investing

  • Only $50 to start. Beginning investors appreciate the low minimum investment requirement. A $50 investment isn't going to make you rich. But it's a starting point that may motivate you to do more.

  • Invest in companies that make a difference. Swell's portfolios only include stocks from companies that make a difference in the world.

    They perform extensive research to find companies that fit the bill AND offer a good return on the investment.

  • The fee is all-inclusive. You will not pay commissions or expense ratios. This can help offset the slightly higher fees charged by Swell Investing.

    Did You Know? Swell Investing uses an algorithm to choose stocks. They are chosen on a purely objective basis.

    There's no human influence in the options, helping you to feel good that the chosen companies have a positive impact on the economy.

  • You are a shareholder of each company in your portfolio. With Swell, you only invest in stocks, not ETFs or mutual funds.

    That means you're a shareholder with voting rights. You can even also attend the annual shareholder meetings.

  • Open an individual account or retirement account. They offer individual taxable accounts and IRAs.

    Whether you want to save for a home or college education or are considering long term goals like retirement, Swell Investing can help.

  • Swell's portfolios are managed by humans. Though it's a robo-advisor, the company has a "rules-based" investment strategy.

    In other words, they periodically review the portfolios and remove stocks that no longer align with their beliefs.

    Did You Know? Swell has a multi-step process to determine if a stock is worthy of investment.

    They screen not only the company's impact on the world, but also its financial health. Only a select few companies make it through the screening process and into Swell's portfolios.

  • Swell rebalances portfolios quarterly. While this happens less often than with a standard robo-advisor, Swell proactively removes companies that no longer align with their strategies.

    Again, this rebalancing is handled by humans. This means you can trust your portfolio remains socially responsible even years after you start investing.

Why You May Want to Look Elsewhere

  • Higher fees higher. You'll pay 0.75% per year, more than with some other socially responsible investing (SRI) robo-advisors.

    Investors, especially those with a large portfolio, may be turned off by the higher cost.

  • Swell Investing doesn't offer tax loss harvesting. Swell's algorithm doesn't automatically rebalance your portfolio to lower tax liabilities on capital gains.

    That liability on top of the hefty fee can make Swell an expensive choice for a robo-advisor.

  • Your portfolio won't have a lot of diversification. Many robo-advisors subscribe to the Modern Portfolio Theory, which thrives on diversification.

    Swell focuses on the six portfolios discussed above, These all invest in socially responsible companies within the designated theme, limiting diversification.

    In other words, you could have a lot of eggs in just a few baskets.

    How It Compares

    Swell Investing vs Motif:
    Motif charges clients 0.25% per year for socially responsible investing via a hybrid robo-advisor.

    You'll need at least $1,000 to start investing and you can build your own custom portfolio, which includes direct stock ownership.

    Swell Investing vs Betterment:
    Betterment is your traditional "starter" robo-advisor. They don't require a minimum investment and you pay 0.25% of your assets under management per year.

    Betterment builds your portfolio based on your answers to questions about risk tolerance. They do not offer socially responsible investments exclusively.

    Swell Investing vs OpenInvest:
    OpenInvest has a similar strategy to Swell, as they are another SRI investor. OpenInvest charges 0.5% per year and requires a minimum deposit of $100.

    OpenInvest creates your portfolio for you based on your beliefs, but they too invest mainly in stocks (along with a few bonds).

    Bottom Line

    If social responsible investing is important to you, Swell Investing offers a good option.

    Their fees are slightly higher than others. But since they are all-inclusive, you might still come out ahead.

    Weigh all of your options and price investments with different brokers before deciding if Swell is right for you.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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