Nearly half of millennials, a much bigger percentage than previous generations, say that they want to invest in line with their values. But it's not always clear how to do that. A new startup called OpenInvest makes it simple: It asks what you care about—climate change, workforce diversity, etc—and then automatically creates a customized index fund made up of the companies that do best on those issues.
Co-founders Conor Murray and Phillip Wei used to work at hedge funds, building sophisticated trading systems. They wanted to use their tech skills to build a robo-advisor system for ordinary investors, helping people save money on management fees. Then they realized they could take it further, and help people have a greater say in what their money was supporting.
The system pulls data from nonprofits and experts on different issues to rank companies, sorts out the companies that don't match a particular investor's values, and then builds a balanced portfolio with the companies that remain.
"With rules-based investing systems, we could quite easily suck in the data from data partners...and use that to give people an investment product that is still top notch, still has the returns of standard investing, but allows you to not be an investor in companies that you may not like," says Murray. "And allows you to promote good behavior."
Socially responsible investing has been around for more than a decade, and certain "green" mutual funds have proven that values-based investing can have returns that match (or outperform) traditional investing.
But most other options are targeted at larger investors who can afford steep fees or who already have a lot of money—Al Gore's $7 billion fund, Generation Investment Management, outperforms the market, but requires at least $3 million to participate. OpenInvest requires a minimum investment of $3,000 or $5,000 depending on someone's age and that may soon drop to $500. The fees are around 0.5%, versus more than 2% at some green funds.
Other socially responsible investing options also don't let investors specify exactly what they care about. (Even Aspiration, another new startup aimed at socially conscious millennials who are just starting to invest, doesn't let investors specify particular values).
"Maybe they don't invest in alcohol, tobacco, and firearms, and maybe you only care about one or two of those," says Murray. "Or maybe you care about something else. We don't know about anything out there that provides this degree of customizability for retail."
Ultimately, the if the model succeeds—and ends up with hundreds of thousands of investors, managing billions of dollars, like other successful funds—the founders think it will give individuals a new power to impact how companies act.
It's a way to help support change with essentially no effort. "You can vote with your dollar...you can do that with your investment money, which otherwise would just be sitting very passively," says Murray.
The startup, which went through Y Combinator's incubator in the summer of 2015, launched their new platform in March.