What comes to mind when you hear the words Wall Street? If you’re like me, you immediately think of Gordon Gecko’s famous take-no-prisoners, win at all costs, greed is good speech from the 1987 film, Wall Street. And if that’s the case, you might also think that making money and doing good are two irreconcilable concepts for investors.
What many investors don’t realize is that those objectives aren’t mutually exclusive. With a portfolio of carefully selected socially responsible investments, it’s possible to do good for the world at large while realizing positive investment returns.
Socially responsible investing (SRI) is becoming trendier by the day. And with more investment platforms offering SRI funds, it isn’t difficult to find funds comprised of companies that earn high marks when it comes to certain social, environmental and corporate governance issues.
Now, you don’t necessarily have to rely upon a firm with expertise in SRI funds to build a successful socially responsible portfolio. But like anything else, there’s something to be said for specialized knowledge and dedication to a single concept.
One robo-advisor, Swell Investing has decided to take up that mission.
Swell focuses all of its efforts on building the best-in-class SRI funds. Of course, Swell isn’t the only robo-advisor offering diversified, socially responsible portfolios. With SRI gaining popularity, especially among younger investors, this corner of the market has become increasingly competitive.
So, naturally the question is whether Swell has what it takes to separate themselves from the pack. Let’s find out.
What Is Swell Investing?
Swell Investing is a relative newcomer to the robo-advisor space. Headquartered in Los Angeles, Swell launched in September 2016.
Swell’s parent company, Pacific Life Insurance Company, provided Swell with a seed investment in all their portfolios. This relationship gives Swell the agility and enthusiasm of a startup plus the benefit of having a financial services company with over 150 years of experience in their corner.
At Swell, their mission is simple: build diversified, solutions-focused portfolios.
With a minimum investment of just $50, Swell offers investors an opportunity to invest with a purpose while also securing positive returns. Swell believes that the biggest challenges facing our world today also present opportunities for problem-solving companies to build highly-profitable businesses while making a positive impact on the planet.
By evaluating thousands of companies, Swell ensures that only high-performing, highly impactful companies make the cut.
Who is Swell For?
Swell is an online investing platform that is best for investors who:
- Are at least 18 years old and a US citizen/resident
- Are conscious about how their money impacts the world
- Want to support positive social change
- Believe that socially responsible companies present an opportunity to profit as an investor
- Want handpicked portfolios and a low minimum deposit to get started
Swell Account Types
Currently, Swell offers the following types of accounts:
- Taxable Brokerage Accounts
- Traditional IRA
- Roth IRA
- SEP IRA
According to Swell, they have plans to offer other account types down the road — so stay tuned.
How Does Swell Work?
Swell employs a “rules-based” investment approach to build its portfolios. Each portfolio is built with two important factors in mind — impact and performance. To find companies that can deliver profit along with a positive impact, the Swell team takes the following steps:
- Screen each company to assess their commitment to making a positive impact across multiple areas of its business (environment, social impact, governance).
- Research each company to determine how it derives revenue.
- Analyzes each company’s financial health, stock valuation and liquidity.
Like many other robo-advisors, Swell allows its users to choose from model portfolios that are curated and managed by the platform itself.
However, unlike most traditional robo-investing platforms, Swell doesn’t determine your portfolio composition based on your answers to an investing questionnaire. Instead, Swell leaves it to you to decide which model portfolios you want to invest in and how you’ll allocate funds among your investments.
Another unique aspect of Swell’s platform is that you aren’t buying into a fund. When you open an account with Swell, your funds are invested in model portfolios that are comprised of individual stocks – not exchange-traded funds (ETFs). As a direct shareholder in each company that you own within your portfolio, you have shareholder privileges, including the right to vote on shareholder resolutions and attend corporate meetings.
Swell believes that, over time, their clients will outperform the market by investing in the companies Swell selects because those companies are uniquely positioned to grow based on social and environmental trends.
Swell offers six “thematic portfolios” that give investors an opportunity not only to participate in socially responsible investing but to target specific areas of interest. Users can invest in any combination of themes. They are also in control of how they allocate their funds, which allows investors to achieve their desired exposure to specific industries and sectors.
Here’s a quick rundown of the six model portfolios Swell users can choose from:
- Green Tech. This portfolio is comprised of companies that create products and services that focus on energy efficiency and sustainability.
- Clean Water. This portfolio consists of companies that focus on conserving and treating water or developing infrastructure to meet increasing demands for water.
- Zero Waste. This portfolio is comprised of companies that proactively address pollution and waste issue and provide solutions for composting, recycling and creating new materials from recycled materials.
- Renewable Energy. This portfolio consists of companies that generate revenue from products, services, or projects that support the development of renewable energy sources and alternative fuels.
- Disease Eradication. This portfolio primarily invests in pharmaceutical and biotech companies that are researching and developing novel approaches to combatting today’s biggest health challenges.
- Healthy Living. This portfolio is comprised of companies that derive revenue from products and services that promote active and healthy lifestyles. These types of companies include those engaged in supplements, food, fitness, and technologies that help people to live longer, healthier lives.
Swell recently introduced an addition to its six thematic portfolios. Swell’s newest portfolio, called Impact 400, features companies that consistently derive revenue from activities aligned with the 17 United Nations Sustainable Development Goals. In short, the UN created a list of goals and targets with the purpose of putting the world on a path toward a sustainable future.
As an investor, Impact 400 gives you the ability to broadly apply your funds across a range of sectors, companies, and themes so you don’t have to decide which themes and allocations are right for you.
Other Key Features
While Swell might not be on the same level as certain more established robo-advisor competitors when it comes to functionality and advanced features, that doesn’t mean Swell doesn’t provide valuable offerings of its own. Here are few key benefits you may want to take advantage of.
- Tax Optimization. Swell uses tax-intelligent lot ordering to limit your tax obligations. While it isn’t as effective as tax-loss harvesting, this feature sells your largest losses first and largest gains last to reduce your taxable gains and save you money on taxes.
- Automatic Deposits. Set up recurring deposits, so you can continuously invest and build your account balance. This feature comes in handy, especially since you won’t see your regular deposits get gobbled up by trading fees.
- Dividend Reinvestment. Swell automatically reinvests dividends of more than $1, so you can take advantage of those compound returns.
- Customizable Portfolios. Swell does their best to identify companies that engage in socially responsible conduct, but that doesn’t mean you won’t find companies in their model portfolios that don’t align with your values. Fortunately, you can customize your portfolio by removing those companies from your investing mix.
One of the nice things about Swell is that their fee structure is clear as can be. When you invest with Swell, you’ll pay a 0.75% annual account management fee.
While that 0.75% fee is straightforward, it’s also on the higher end of the robo-advisor fee spectrum. By comparison, Wealthfront and Betterment charge just 0.25% for their baseline services. And the most you’ll pay with Wealthsimple (which also offers SRI portfolio options) is just 0.50%.
Although you’re sure to pay a premium for Swell’s unique SRI services, the price isn’t so bad when put into perspective. For example, if you invest $500, you’ll pay just $3.75 for the year. That’s only 31 cents a month!
Plus, you’ll never get hit with any trading commissions or other hidden expenses with Swell.
Getting Started with Swell
To sign up with Swell, you must be a US citizen or resident alien and at least 18 years of age. If you meet those requirements, the rest is easy! Click here to get started. Once you land on their website, Swell will ask for the following information:
- Social Security number
- Date of Birth
- Citizenship/residency status
- E-mail address
- Employment status
Funding your account is also a piece of cake. Swell supports automatic bank linking with over 1,500 banks and offers alternative verification methods in case your financial institution isn’t among those 1,500 banks. In general, it only takes a few days to link your account, fund, and get invested!
Socially Responsible Investing. Swell’s portfolios allow investors to own actual shares of impact-driven companies.
- $50 Minimum Investment. An affordable initial investment makes Swell an attractive platform for beginning investors.
- Actively Managed Portfolios. Unlike most robo-advisors, Swell’s portfolios are actively managed by their team of experts.
- Fractional Shares. Swell allocates shares to investors based on the dollar amount they choose to invest, even if it’s less than a full share of stock. This means that every dollar is invested which helps you get the most value from your investments.
High Management Fee. As a boutique robo-advisor, Swell’s 0.75% management fee may be justifiable but that doesn’t mean you’ll enjoy paying it with less costly options readily available.
- No Tax-Loss Harvesting. Investors can get hit with capital gains taxes that could easily be avoid with tax-loss harvesting, especially with frequent stock sales due to Swell’s quarterly rebalancing.
- No App. It’s surprising Swell hasn’t developed an app yet. For now, desktop access will have to do.
Is Swell Right for You?
One of Swell’s most compelling aspects is their ability to generate enthusiasm for impact investing. In Swell’s opinion, as companies bring value to the world, investors will also see that value reflected in their investment portfolio as their balance climbs.
If you’re truly interested in socially responsible investing, you may find the opportunity to gain exposure to a unique mix of impact-driven companies through the Swell platform to be enticing. And while Swell faces stiff competition from Wealthsimple’s SRI portfolio (which also features a significantly lower fee, at 0.50%), it makes sense to turn to a robo-advisor that strictly specializes in building profitable SRI portfolios.
On the other hand, if socially responsible investing is more of a curiosity than a passion for you, I wouldn’t recommend choosing Swell over more established, traditional robo-advisors like Wealthfront or Betterment.
Of course, that could change as Swell continues to increase functionality and introduce new account types to their mix. When that time comes, Swell’s offering might be tough to beat!