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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Keep reading to find out.

Swell Investing enables you to invest in socially responsible companies while growing your portfolio at the same time. Swell has six portfolios that are made up of between 40 and 60 individual stocks. With a minimum investment of $50, you can have your own portfolio too.

Swell might seem like a startup, but it does have a history, as its parent company is Pacific Life. Swell offers portfolios that span the spectrum of socially responsible investing. You choose the portfolio that aligns with your beliefs and Swell handles the rest.

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, they manage your investments. All you have to do is fund the account and choose the portfolios that mean the most to you.

You'll find one major difference between Swell and other robo-advisors. Rather than choosing your portfolio for you based on your risk tolerance, Swell lets you choose from the following six portfolios:

  • Green Tech
  • Renewable Energy
  • Zero Waste
  • Clean Water
  • Healthy Living
  • Disease Eradication

Each portfolio contains between 40 and 60 stocks from companies that align with the chosen category. You are able to eliminate up to three stocks from each portfolio that you do not believe in or do not want as a part of your portfolio. You are also free to make as many changes as you want once you are an investor.

Signing up with Swell is simple. You provide your personal identifying information and answer a few questions. These questions help Swell make sure you are a good fit for their portfolios. You'll answer questions pertaining to your current assets, your desired timeline, and ability to handle risk.

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

Is Swell Investing Safe? Investing is always risky. There's no way to make it invincible. 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?

As you probably guessed, the socially conscious investor is a good candidate for Swell Investing. But you also have to be a hands-off investor. You don't actively manage your funds - Swell's investment management professionals do it for you.

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

Their target audience is millennials with an interest in making a difference in the world. With a low minimum investment, millennials can start investing, putting their dollars to work changing how the world works.

What Are the Fees?

Some people may view Swell's fees as rather high because they charge 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

  • You only need $50 to get started. Beginning investors, especially millennials, appreciate the low minimum investment required by Swell. Of course, a $50 investment isn't going to make you rich, but it gets you started and hopefully motivates you to do more.

  • You can 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 not only to find companies that make a difference, but that also offer a good return on the investment.

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

  • Swell Investing uses an algorithm to choose the stocks to offer. Swell's chosen stocks 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 only invest in stocks. Swell doesn't offer ETFs or mutual funds. You are a shareholder just as you would be if you handled your own investments.

  • You can open an individual account or retirement account. Whether you have short-term goals to save for a home or college education or you are saving for retirement, Swell Investing can help. They offer individual taxable accounts and IRAs.

  • You are a shareholder of each company in your portfolio. As a shareholder, you have voting rights. You may also attend the annual shareholder meetings.

  • Even though it's a robo-advisor, Swell's portfolios are managed by humans. The financial advisors use a "rules-based" investment strategy. In other words, they periodically review the portfolios and remove stocks that no longer align with their beliefs.

  • Swell thoroughly analyzes companies before including the stocks in their portfolios. Swell has a multi-step process to determine if a stock is worthy of investing in. 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 the Swell portfolios.

  • Swell rebalances portfolios quarterly. While this is much less often than your standard robo-advisor, Swell proactively removes companies that no longer align with their strategies. Again, this rebalancing is handled by humans, giving you peace of mind that your portfolio remains socially responsible even years down the road after you start investing.

Why You May Want to Look Elsewhere

  • The fees are higher than many other robo-advisors. Paying 0.75% per year is on the higher side of many robo-advisor fees. Beginning investors may be turned off by this fee, as it is even higher than a few other socially responsible investing (SRI) robo-advisors.

  • Swell Investing doesn't offer tax loss harvesting. Swell doesn't have an algorithm that automatically rebalances your portfolio to help lower your tax liabilities on capital gains. The tax liabilities 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, all of which invest in socially responsible companies within the designated theme, limiting the diversification. In other words, you could have a lot of eggs in one basket.

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 for you based on your answers to their questions regarding your risk tolerance. They aren't an exclusive SRI investor.

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 $3,000. 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 come out ahead. It's important to weigh all of your options and price the investments out with different brokers to see which one would help you come out ahead.

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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