In 2016, Gianni Kovacevic released My Electrician Drives a Porsche? Investing in the Rise of the New Spending Class. It’s an investing allegory that shows how everyday investors can profit from macroeconomic themes.
It’s a powerful investing narrative, but it was tough for me to translate the story into action.
Today, that kind of investing is easier. Swell Investing is an investment company that helps investors capitalize on meta-narrative investing. They’ve identified six positive future investing themes. Those themes shape their approach towards creating investment portfolios. But returns aren’t the only thing driving the Swell investing strategy. They rely on best in class socially responsible investing practices to direct investor dollars.
Is Swell Invest the right choice for your investment portfolio? Here’s what you need to know.
Swell Investing Basics
Swell Investing is the newest new kid on the block when it comes to “Robo-advisors.” They are a tiny company (just about $7 million under management) with grand aspirations to give a better investing option to people who care about where their money goes.
Right now, Swell helps investors invest in six investment themes:
- Green Technology
- Renewable Energy
- Zero Waste
- Clean Water
- Healthy Living
- Disease Eradication
Swell investors own individual stocks (not shares of ETFs or Mutual Funds), and most stocks are small or mid-cap, US based stocks. Because investors own stocks, they won’t pay expense ratios each year.
However, Swell investors will pay an annual management fee. Fees on swell accounts are 0.75%. Investors will not incur trading costs, even though Swell will buy and sell stocks on your behalf every quarter. Swell abides by a fiduciary standard which means they must act in your best interest. Swell investment minimums are $500.
Drawbacks To Swell Investing
Investors who want to invest in positive, future oriented companies might feel drawn towards Swell’s socially responsible investing strategy. But before opening up an account, it’s important to understand drawbacks to Swell Investing.
Most importantly, Swell investors should buckle up for a wild ride. Right now, Swell investors are highly concentrated in small company, US based stocks. What does that mean? You’re very likely to see wild swings in valuations. If you’re the type to turn paper losses into real losses, Swell is a bad choice for you.
Another concern is the tax considerations of the accounts. Unfortunately, this is a big weakness for Swell. Their platform will track capital losses, but their algorithms aren’t particularly tax friendly - there's no mention of a tax loss harvesting strategy like Betterment. Investors may incur both short and long term capital gains from Swell’s quarterly rebalancing strategy. When you combine the taxes with the 0.75% management fee, Swell becomes a very expensive investment choice.
Note: As of 8/30, they started offering IRAs.
Finally, Swell investors don’t have control over their investments. Swell chooses the stocks (using their algorithms), and they choose the investing themes. Investors choose to go along with the ride or not. For some investors, this is an advantage, but many investors want to feel they have control over their investments.
Advantages To Swell Investing
One of Swell’s greatest accomplishments is creating a compelling vision for socially responsible investors. They focus on selecting companies that are building a positive future for everyone. As these companies bring value into the world, investors should see the value of their investment portfolios start to rise.
Another advantage to Swell is that their portfolios aren’t generated by stock pickers. They use algorithms designed to capture the best in socially responsible companies. Swell uses objective data, so investors can feel confident that the investment choices reflect positive investing themes.
Finally, Swell has a simple, easy to understand fee structure. While a 0.75% management fee is expensive, it is a good value for socially responsible investors.
Final Thoughts On Swell Investing
Swell’s heavy bias toward small cap stocks makes it difficult for me to recommend it for all your investments. However, if you’re interested in socially responsible investing, Swell is an excellent choice for an after-tax investment.
However, if you're not truly driven by socially responsible investing, it's hard to recommend Swell over more traditional robo-advisors like Betterment.
Over time, I expect that Swell will add increased functionality, increased diversification options, and retirement accounts to their mix. When Swell adds those features, I think it will be the advisor to beat for socially responsible investors.
What are your thoughts on Swell Investing and socially responsible investing in general?
Swell Investing Review
Swell Investing is the newest kid on the block when it comes to robo-advisors. It is a robo-advisor that focuses on socially responsible and impact investing trends, but has some major drawbacks.