OpenInvest is the world’s first Socially Responsible “Robo-Advisor.” They make it easy and inexpensive to invest only in companies that align with your values.
OpenInvest’s launch seems like a boon for ethical investors, but investors need to consider a slew of issues first.
OpenInvest pushes investors towards a low-cost, well diversified portfolio. Unlike most Robo-Advisors, OpenInvest customers don’t invest in ETFs. They invest in individual stocks and a Bond mutual fund.
The individual stock choices aren't generic. Investors tell the OpenInvest platform the causes they care about. OpenInvest uses those issues to recommend stock for the investor. Potential investors should note that OpenInvest's causes lean left of center.
All recommended companies fall within the S&P 500 (the 500 largest companies in the United States). Investors can manually edit their investment choices based on their preferences.
By helping investors choose individual stock positions, OpenInvest keeps costs low. Their ongoing fee is 0.50% per year. Since OpenInvest puts investors into individual stocks, this is your total investing fee.
At first blush, this looks 0.25% more than other robo-advisors. However, OpenInvest investors avoid expense ratios, which makes the management fee more appealing.
Besides individual stocks, OpenInvest customers own a bond fund. Investors can choose between a "green" fund and a standard corporate bond fund.
In many ways, OpenInvest acts like a standard RoboAdvisor. The OpenInvest technology conducts tax loss harvesting, and it keeps portfolios in balance. But because OpenInvest focuses on ethical investing, they keep investors more engaged. As new issues arise, investors can change their portfolio. Alternatively, investors can let the platform make changes for them.
My primary concern here the encouragement to divest before a quarterly rebalance which seems like an undisciplined method for pursuing ESR investing. Being undisciplined kills returns, and the read I got from the platform made it seem easy to be undisciplined.
OpenInvest uses over 400 Environmental, Social and Governance related metrics to determine ethics scores. They use those scores to overweight the portfolio towards companies that align with an investor’s values. OpenInvest also helps investors avoid companies that obstruct movement towards a social goal.
One obvious problem with OpenInvest is the lack of diversification. Investors choose only among US based, large cap stocks. The only form of diversity is a bond fund. Investors may have to forgo some of the portfolio performance driven by small cap and international stocks.
Many studies show that socially responsible investing no longer means lower returns. However, the OpenInvest approach to investing leaves investors underdiversified.
This means that a downturn can strike OpenInvest investors harder. For many investors, this is a small price to pay for a portfolio that lets them sleep well at night.
Investment Account or Twitter Account?
The OpenInvest platform encourages an "Activist" approach to investing. For the average investor this approach can be a downright dangerous. It encourages investors to react to controversies by divesting of certain corporations. Normally, that will translate to selling low.
Certainly, the ethical investor may make some sell decisions based on egregious business behavior. However, selling investments after a controversy isn’t always a good move.
Investors can lose a lot of money that way, and selling doesn’t cause a company to change it’s behavior.
In fact, it can mean the opposite. Selling off a position means that someone who doesn’t share your values may buy it. Buying or selling a few shares of stock has little influence on a company’s behaviors.
OpenInvest oversells the power of the retail investor in the boardroom. The fact is, if you want to change a company’s behavior, buying or selling a few shares won’t help. Shareholders face a massive coordination problem, and OpenInvest cannot fix it. OpenInvest hypes the ability for users to vote in shareholder resolutions they care about with a swipe. I believe this is overstated and will have little impact in boardrooms.
OpenInvest is a feel good platform. Retail Investors won't make a difference in the board room, and it's irresponsible of OpenInvest to make investors think otherwise. You should feel good about your investments. You should not mistake feeling good for doing good.
Other Options For The Ethical Investor
OpenInvest can be a decent option for ethical investors. Holding individual stocks empowers investors more than something like owning ETFs.
At least stock holders have the option to submit proxy ballots (which OpenInvest will do on your behalf). However, OpenInvest isn’t the only option for Ethical Investors.
Ethical investors can select individual stocks Robinhood. With Robinhood investors can buy and sell stocks for free.
Investors can buy managed Social Investment funds through a traditional brokerage like Fidelity.
Ethical investors should also look for returns outside of the stock market. Peer to peer lending and real estate investing may match an investor’s personality.
Opening a franchise business may also provide a lower risk way to invest.
What do you think of ethical investing? Given the low fees, would you ever consider trying OpenInvest?
OpenInvest is a Socially Responsible “Robo-Advisor” that make it easy and to invest & affordable to invest in companies you support.