Impact investing was limited to the wealthy
We’ve heard it before. In order to create a prosperous future, we must invest. And the sooner we start, the better (hooray for compound interest!) But for most of us, money has been a hurdle. How can we afford to invest when there’s hardly anything left at the end of the month? On top of it all, investing in companies that are actually doing good in the world has not been easy to do. This type of investing is called impact investing.
The result? The very people who should be investing aren’t able to. It used to be that if you wanted to impact invest in socially responsible companies, you only had two choices:
- buy individual stocks from companies that do good, or
- buy into a socially responsible mutual fund
…and it took a lot of work
The first option, buying individual stocks, requires you to open an account with a broker. That means you are subject to trading and other fees charged by the broker.
It also requires you to do a ton of research on lots of companies. Researching both a company’s impact and financial outlook is no easy task. Also, if you don’t balance your risk among various companies, you are putting all of your eggs in one basket. That’s risky.
Mutual funds will balance risk for you, so you don’t have to do as much research. But there are hundreds of impact funds and socially responsible funds. Plus, they come with a variety of fees (and some of these fees are hidden). Finally, because many factors affect a mutual fund’s fees, it can be difficult to determine whether you’re getting an investment that will grow over time, or whether you’re just running in place. Expenses are no joke and they impact lower budget investors most of all.
Not to mention those fees…
- There are 337 socially responsible mutual funds (including impact funds), according to Morningstar. The expense ratio for socially responsible mutual funds ranges from 0.45% to 3.38%. That means that for every $1,000 you invest in these funds, it will cost you between $4.50 and $33.80.
- On top of that, you’ll pay a trading commission fee every time you buy or sell into most of these funds. Not fun. These fees take a big chunk out of your assets over time.
- To add insult to injury, the minimum investment amount for these mutual funds is $2,500. Some minimums are $5,000, $10,000, $25,000 or even higher. No wonder people find it difficult to invest in socially responsible funds.
So, for everyday people who don’t have a ton of time to research and don’t have a bunch of cash laying around, socially responsible and impact investing has been out of reach.
But things are changing.
Impact investing is now available to everyone
Lower cost options, such as socially responsible ETFs (exchange traded funds) are now available. And although ETFs also have expense ratio fees, they are generally lower than those of mutual funds.
In addition, the introduction of robo advisors has made investing accessible to everyone. Robo advisors use computer algorithms (a set of specified rules) to manage a portfolio of companies or funds. Robo advisors allow you to set up customized, diverse portfolios. They can also give you access to wealth management services previously only accessible to the wealthy, like rebalancing.
When you combine robo advisors with impact investing platforms, you get the best of both worlds: a chance to invest for your own prosperity, and a chance to create prosperity in the world.
There are a handful of robo advisor platforms out there, including Wealthfront, Betterment and Wealthsimple. And some have recently introduced social responsibility portfolios. But not all socially responsible robo advisors are the same. Products, fees, and trading policies can differ greatly. That’s one of the reasons why we think Swell Investing is looking pretty good.
Why we like Swell Investing
Swell Investing is one of the most successful and accessible sustainable investing platforms around today. Anyone can join for $50.
You own the companies in the portfolio
Swell uses SMAs (Separately Managed Accounts) for investors to create a customized portfolio of companies, across a variety of socially responsible themes, based on Swell’s rigorous criteria for performance and impact.
Swell investors legally own the companies listed in their portfolio. By comparison, investments in mutual funds and ETFs are actually investments in an organization which, in turn, owns the securities in the fund.
No expense ratio fees or trading fees
Because you own the stocks in the SMA, there are no expense ratio fees like you find with ETFs and mutual funds.
Swell offers thematic, active management that fully integrates ESG and impact concepts. That means you don’t have to do the research needed for buying individual stocks AND they are less expensive than the typical mutual fund.
You don’t have to have a separate brokerage account to trade, either. Trading is all included on their impact platform.
Rigorous selection criteria
To be part of Swell’s impact investing portfolios, companies have to pass two strict tests:
- They have to get through strict criteria selected to prove environmental and social performance.
- They have to score high on financial potential.
Investors can choose from 6 different themes today:
- Green Technology (+38.05%) – Think electric cars and LED lights.
- Renewable Energy (+23.33%) – Think wind turbines and solar panels.
- Zero Waste (+24.84) – Think recycling and repurposing.
- Clean Water (+28.58%) – Think water filters and pipe repairs.
- Disease Eradication (+19.11) – Think immunizations and research.
- Healthy Living (+7.37%) – Think nutritious foods and health centers.
Swell also lets you allocate across themes. For example, if you are interested in Green Tech and Renewable Energy, you can allocate whatever percentage you choose to each. And you can change your percentage “mix” anytime you want, at no cost.
Very easy to set up
Setting up an account with Swell Investing is much like downloading a favorite app. It is super easy to set up, fund and start investing. This consumer-friendly technology is making impact investing accessible to everyone. We tried it out and even took screenshots of their set-up process. Check it out.
All 6 portfolios have shown solid growth. All have shown growth since inception. As of October 1, 2017, all but one has outperformed the Russell 3000 and S&P 500 indexes.
In addition, Swell reinvests dividends over $1, so your investment grows over time. You can also set up an automatic investing plan of as little as $20 per month directly from your bank account, and just let your money grow for profit and for good.
Your investments are insured
Although Swell may seem like a newcomer to the investment scene, they are backed by Pacific Life, which has been around since 1868. Swell’s brokerage services are provided by Folio Investments, a well known and regarded broker-dealer.
Both Folio and Swell are registered with the Securities and Exchange Commission. Folio is also a member of FINRA, (Financial Industry Regulation Authority,) and SIPC, (Securities Investor Protection Corporation) – the major insurer of U.S. brokerage accounts.
Thus, each brokerage account at Swell Investing is protected up to $500,000, which includes a $250,000 limit for cash.
How Swell compares to other impact investing options
Swell’s fee at 0.75% is a little higher than ETFs, but it compares favorably with most mutual funds in the SRI space. And Swell does not charge an expense ratio that you’d typically find with ETFs and mutual funds.
Therefore… no surprises. This is how Swell’s fees compare to other impact investing options.
|Betterment||Motif||Wealthfront||Wealthsimple||SRI Mutual Funds|
|$0||$300||$5,000||$0||$2,500 – $25,000||$50|
|0.14%-0.22% for ETFs||$0
|0.45% – 3.38%||$0
|$0||$0||$0||Depends on broker
$4.95 – $14.99
In addition, there are no extra fees for trading.
They recently lowered their minimum investment requirement to $50. So you can take them for a trial run for less than a decent dinner out.
Motif, a values-driven robo advisor backed by Goldman Sachs, requires a minimum investment of $300. Motif also offers SMAs, but they will cost you if you are an average investor. For example, if you only had $500 to invest, and you made no changes to your investment portfolio, at $9.95 x 12, your fees for the year at Motif would be $119.40 (more if you made any trades).
At Swell, you would pay $3.75 whether you made changes to your portfolio or not. Their straightforward fee is in line with their policy on transparency. There are no surprises, and you can view the impact a company is having as well as its financial performance, any time you like.
It’s your turn to become an impact investor
Swell investors get the sort of professional investment oversight that was traditionally only available to wealthy people. In addition, they do the deep analysis to find the best financial performers that are doing right by People and Planet, and handle the management and maintenance required to stay on task in the long game.
Check out our interview with Swell Investing CEO Dave Fanger and CMO Teresa Orsolini. Our partner Pedram Shojai from Well.org had a great conversation with the Swell team about investing for growth and impact.