How It Works

Background

OpenInvest is better investing. We create a comprehensive financial portfolio tailored to both your finances and your values. Here's how:

The Financial Basics

In general, it is the opinion of both OpenInvest and many financial experts that once you have met a few other criteria, you should invest passively in the stock market. Investing "passively" means you do not try to time market events, pick stocks, or try to beat the market. This is the same investment philosophy recommended by Warren Buffet, Jack Bogle, David Swensen and many other highly respected investors and is also the idea behind products like Vanguard, Wealthfront, Betterment and most mutual funds.

Why invest at all? The reason you should probably invest, as opposed to save, your hard-earned money is that, over the long-term, you can be pretty confident that, if invested properly, your money will grow substantially. If you were to hold the same money in a savings account, the value would get slowly eaten away by inflation (the tendency for prices to rise over time).

As a passive investor, your two primary strategies are diversification and reducing fees.

Diversification means holding investments in many different areas to reduce the risk of loss. This could mean different companies (e.g. Microsoft and Apple), companies in different sectors (e.g. manufacturers and health care providers) or entirely different asset classes (e.g. stocks and bonds).

Fees are usually measured as a percentage of your investments on an annual basis (e.g. fees of 1% on a portfolio of $10,000 would mean an annual charge of $100). You want to keep fees as low as possible as they will add up, especially as your investments grow. Luckily, passive investment products are generally low fee. Just as you shouldn't be trying to beat the market, you probably shouldn't be paying anyone else to try and beat it for you. Over 90% of active managers (people who pick stocks for you) fail to beat the market,1 especially when you incorporate their typically higher fees. OpenInvest charges an all-in annual fee of 0.5%, charged to the account monthly.

Learn more about why investing is a good idea in this blog post

Investing Responsibly

Until recently, doing all the above and also taking into account the things you care about was impossible. The costs of customization were too high and good data was hard to find. Thankfully, both things are changing fast.

We now have many sources of data on the performance of public companies in a broad range of issues. When you tell us what matters to you, we can use this to tailor your finances. You will still be passively investing and tracking the overall market, but with superior customization and functionality, and without sacrificing performance

Learn more about responsible investing in this blog post

Common Questions

What is the basic structure of my portfolio?

Portfolios are structured as a combination of: A) A basket of equities (stocks) that seek to replicate the performance of the S&P500, but are reflective of the things you care about; and B) A bond fund, which provides diversification. We provide you with the option to use a green or traditional bond fund. This blended portfolio provides the diversification characteristics necessary to track the performance of the market. Furthermore, we will be adding asset classes and expanding the universe of equities in the coming months to provide even further diversification and engagement opportunities.

Are OpenInvest portfolios active or passive?

Passive. We don't change the allocation mix based on any personal views, attempting to beat the benchmark, or anything that isn't simply rebalancing and tracking the performance of the overall market.

Over 90% of active managers fail to beat the market and instead end up underperforming because of the fees they've charged you for their "expertise."1 Hence the mega-trend in the US towards passive strategies. American savers moved roughly US $230 Billion from actively managed funds to passive funds in the last year alone.2

Am I buying into a fund?

No, each client has a separate account with a custom portfolio.

We aim to replicate the market and give you direct ownership of the underlying companies. By bypassing the middle man, this "better investing" approach has several main benefits, including:

  • Fully customize to the things you care about
  • Make changes any time
  • Total transparency into what you own
  • Vote in shareholder resolutions
  • Optimized Tax-Loss Harvesting - by holding a basket of individual companies rather than funds, there are significantly more opportunities to decrease the tax you pay on your investment gains. This benefit tends to more than outweigh management fees.

The Details

Let's set aside the fixed income portion of a portfolio for a moment and just look at the equity portion. We start with a universe of securities - the S&P 500 - because we believe it is the best way to track the overall performance of the stock market. We will be further expanding it to include smaller cap and international securities in the near future.

Next, we get data on how well companies align with the set of issues you care about, and we overlay this on the universe of securities. You can read more about the details of this data and the metrics we use on our issues page. Depending on the issue and the metric this could result in a company being labelled as good, bad or neutral.

All the bad companies, on any issue you care about, are ineligible for your portfolio. We'll start building a portfolio from the good ones and use neutral companies to balance other factors such as sector diversification, beta, and average weighted market cap.

The resulting portfolio will have over 60 stocks and closely match the sector breakdown of the original universe.

For the bond side of your portfolio, we invest in BND, a diversified bond ETF (Exchange Traded Fund) with a very low expense ratio. We include the expense of this fund in our fee management fee, so this is not an additional cost for you. Alternatively, you can elect to use a 'Green Bond' fund (CGAFX). We leave this up to you, as unfortunately the expense ratio is high (~.88%), and we have to pass it on. During signup, based on the percentage of your portfolio allocated to bonds (which is based on your risk tolerance), we will show you the additional fee that would result from the green bond fund, and you can make a decision then.

We rebalance your portfolio automatically (and with no additional fees or expenses) when prices change significantly, you take actions, or you add or subtract funds from your account. We also keep your account up-to-date with the issues you care about. The world is always changing, new data on corporate behavior is frequently being released, and we are always working to improve our company scoring metrics.


If you have any unanswered questions please email support.