October 9, 2018

Swell Investing Review: Is It Good?

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Looking for a robo-advisor with a socially conscious approach? Swell Investing promises ethically responsible, hands-off investing. But does it deliver?

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Swell Investing lets you invest through socially responsible companies. It has six portfolios with different impact categories:

  • 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.

After funding your account, you'll choose from the six available portfolios. You can eliminate up to three stocks and you're free to choose how you allocate the portfolio. Swell then manages your investments.

Key Fact: While other robo-advisors offer investments with various risk levels, Swell's portfolios are all within the "moderately aggressive" range.

Sign Up With Swell Investing

You'll need to provide some personal information and answer a few questions. Your answers will 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

Your answers will help Swell decide if you are a good fit for their portfolios. 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 with Swell are protected by the Securities Investor Protection Corporation (SIPC).

SIPC insures your investments up to $500,000 if and only if Swell Investing or Folio Institutional go out of business. SPIC does NOT protect you if the value of your investment falls.

Who Is Swell Investing Best For?

Socially conscious, hands-off investors should consider Swell. Remember, you won't actively manage your funds.

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

Key Fact Swell Investing primarily targets millennials who want making positive impacts through investing. With a low minimum investment, younger adults can use their dollar to change how the world works.

What Are the Fees?

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

Compare Robo Advisors

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 companies that make a positive impact in the world.

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

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

  • Be a shareholder
    With Swell, you only invest in stocks, not ETFs or mutual funds. That means you're a shareholder with voting rights of each company in your portfolio. 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 can help.

  • Swell's portfolios are managed by humans
    Though it's a robo-advisor, the company has a "rules-based" investment strategy. Real people periodically review the portfolios and remove stocks that no longer align with the platform's mission.

    Did You Know? Swell has a multi-step process to determine if a stock is worthy of investment. They screen a company's impact on the world AND its financial health. Only a select few make it 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. This rebalancing is handled by humans.

Why You May Want to Look Elsewhere

  • Higher Fees
    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.

  • No 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.

  • Lack of Diversification
    Many robo-advisors subscribe to the Modern Portfolio Theory, which thrives on diversification. Swell focuses on only six portfolios.

Each portfolio invests in socially responsible companies within a designated theme, which limits diversification. In other words, you could have a lot of eggs in just a few baskets.

How It Compares

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.

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