Low cost brokerages changed the world of finance. You no longer have to be a Warren Buffett, Benjamin Graham or Peter Lynch to invest like them. This is a cause for celebration among the small investor community.
Motif Investing is one brokerage committed to this change. They offer an intuitive, easy to use investment platform. The platform focuses on fractional shares, themed investing, and easy rebalancing. But is it the right platform for you? I’ll give you the information you need to decide.
When you’re considering a new platform, you should always ask three questions:
- Will this platform help me put process ahead of emotions?
- Does this platform help me execute my investment strategy in a cost efficient manner?
- What behaviors will this platform promote?
YOUR answers should determine whether YOU should use a the platform.
Will this platform help me put process ahead of emotions?
When it comes to stock market investing, emotions are the enemy of returns. Humans seem to be uniquely designed to be bad investors. Greed tempts us as markets rise, and fear holds us back when they fall.
Our only real defense against emotions are knowledge and process. Whether the market rises or falls, we need process.
Will Motif help you stick to your process? It depends.
First, they act as a traditional low cost brokerage. Trading a stock or an ETF costs $4.95 per trade. Importantly, Motif allows you to buy “fractional shares.” That means that you can buy $500 worth of Amazon Stock, $500 worth of BP stock, and $500 worth of GE stock if that’s your plan. If you “Dollar Cost Average” into particular stocks, Motif may be a perfect fit for your process.
Second, Motif allows investors to create investment motifs. These are baskets of up to 30 individual stocks that follow an investment theme or trend. A Motif could be as broad as Emerging Market Indexes or as narrow as Cyber Security. You can make your own Motif, or use some of the Motif’s provided by investing experts. Motif allows you to buy all 30 stocks for $9.95. If you need to buy or sell stocks within the Motif, you can do so for $9.95.
Finally, Motif offers an auto rebalancing option, Motif Blue. This allows investors to Auto Invest and Auto Rebalance a Motif for a set monthly price. Prices for this service range from $4.95 to $19.95 per month. This is an excellent product for people committed to individual share investing.
Where does Motif go wrong? The Motif platform makes it too easy for investors to fall prey to “Shiny Penny Syndrome.” You can explore the myriad of Motifs designed by expert investors. You can find insights into which over and under performed the previous month. It’s easy to get sucked into research only to veer from your investment strategy.
Does Motif help you invest in a cost efficient manner?
Cost savings are one of Motif’s strongest selling points. Motif allows you to invest in stocks or cost efficient exchange traded funds. Stocks no expense ratios. The exchange traded funds have low expense ratios (often below .2%).
As an investor, your only costs are $4.95 per trade of an individual stock or $9.95 to trade a motif. If you opt for the Auto-Invest/Auto Rebalance option, you pay a very reasonable $4.95-$19.95 per month. If you have a portfolio worth at least $50K at Motif, you will have an effective expense ratio of less than .48%.
Motif makes it cheap and easy to own fractional shares of stocks. You can gain broad market exposure for a low price.
However, Motif isn’t cost effective for everyone. Motif doesn’t reinvest dividends into a Motif. This means most investors will need to pay at least $4.95 per month to reinvest dividends in a single motif. Compared with Tradeking, this makes Motif expensive. Dividend investors may need to consider other options.
Index fund devotees will find cheaper options at Charles Schwab or Vanguard.
The trick to build your own diversified portfolio
Last week we talked about building a proper asset allocation. The hard part about that is you typically need to invest in multiple ETFs to make that happen. When you do that, you're going to have commissions on each individual ETF.
With Motif, you can build your own Motif that mimics whatever asset allocation you want – as long as you don't exceed the 30 stock limit. You can have 10 different ETFs inside your Motif. The benefit here is, you buy the Motif for just $9.95, which can save you lots of money over time.
Furthermore, you are able to rebalance a Motif you create. So, instead of having to pay commissions to buy and sell individual ETFs, you rebalance your Motif and life's good.
What behaviors will Motif promote?
As an investing and trading platform, Motif promotes some excellent investment behaviors. Their $250 Motif minimum makes it easy to start investing, even if you don’t have a ton of free cash. The Motif Blue program that promotes auto investing and auto rebalancing. This exposes investors to behaviors that give them a slight edge in the market. The 30 stock motif nudges investors to gain broad exposure within their theme.
Early stage investors will find tremendous that Motif promotes many excellent behaviors.
But the platform promotes some concerning behaviors. 30 stocks does not constitute a well diversified portfolio. The 30 stock limit promotes an investment myth. The myth states that 95% of the benefits of diversification come with the first 30 stocks. If you choose to invest with Motif, you need dozens of motifs, not just one.
I also mentioned that Motif promotes “Shiny Penny Syndrome.” Motif has a built in social platform that allows you to compare yourself to other investors. The social platform exposes investors to interesting investment ideas. It also highlights recent winners and losers. This is great for expanding investment ideals. But the platform distracts from executing on your strategy. I won’t say ignore this part of the platform. But you need to be a wary user. You should not compare yourself to other investors. You need to have a clear understanding of your personal investment goals.
Early stage individual stock investors will love Motif. It fits their needs, and it promotes most of the right behaviors. Index fund investors, and those with larger portfolios may find better platforms to suit their needs. It doesn’t fit my personal investing strategy, but it could be perfect for yours. If you haven’t started investing yet, or you need a new investing platform put it on the list to consider.
Have you tried Motif yet?
Photo Credit: gajus