Motif Investing puts a spin on investing like no other. As opposed to directly investing in individual stocks or ETFs, Motif Investing allows you to create your own funds based off your own investment ideas and strategies. If that sounds of interest to you, then this Motif Investing review should help you determine if they’re the best online brokerage for you.
There are many discount brokers to choose from, each catering to specific investment needs with unique ways of differentiating themselves. Some discount brokerages like to do this by offering low prices and fees, while others offer a wealth of research and trading tools to help you find prospective investments. The differentiation has become a little more fragmented when you throw in the growth of the robo-advisor market.
Motif Investing takes a hybrid approach that really sets them apart in the brokerage industry by allowing you to invest in a given theme or motif that’s either pre-made or uniquely designed for you. This innovation and flexibility easily makes Motif Investing a must-have online broker for diversification of strategies.
Motif Investing Background
Motif Investing was started by Hardeep Walia in 2010 and has grown exponentially since. Walia started Motif as he left a senior executive position at Microsoft and serves on several FINRA boards. The mission of Walia, plainly speaking, was to reinvent the way we view investing. Instead of paying high fees and other difficulties, he wanted to lower the barrier of entry and make investing simpler for those wanting to start as well as those wanting to grow their wealth.
Since beginning Motif Investing, it has taken off from getting backed by Goldman Sachs, J.P. Morgan, and Renren among others. Not only that, but Motif Investing was recognized as the #4 “Disruptor” by CNBC in 2012 for ‘revolutionizing the investment industry’ and was recently recognized by Fast Company as the most innovative company in the personal finance space in 2015. Simply put, Motif Investing has harnessed the belief of investing in a theme, and controlling it yourself, and others are taking notice.
How Does Motif Investing Work?
As was mentioned prior, you do not trade individual stocks or ETFs with Motif Investing – rather ideas or themes. What does that look like? It’s quite simple really. With Motif Investing, you create your own index fund for the lack of a better term that’s focused on a specific theme. This motif, as it’s called, is a basket of stocks and ETFs that can contain up to 30 different securities.
Don’t worry if you don’t want to go through the hassle of creating your own motifs, as Motif Investing has about 150 pre-made motifs to choose from.
The cost for each motif is a reasonable $9.95. So, instead of needing to buy numerous different securities and incurring a commission for each of those, you get access to as many as 30 stocks/ETFs for $9.95. Assuming you go with a pre-made motif they do allow you to customize it though there is a $4.95 charge per security to get rid of those holdings or a flat $9.95 to change as many as you want. Motif Investing also currently offers both individual and joint brokerage accounts, as well as Rollover 401(k)s, Roth, and Traditional IRAs.
As you will see in the visual below, the thought process behind Motif Investing is simply to go from your chosen theme to creating your own fund.
Motif Investing Features
Now that we know a little bit about how Motif Investing works, here are some additional features:
- Premade motifs. This was touched on briefly, but Motif Investing offers approximately 150 pre-made motifs. Motif makes it easy to search for them as you can look based on return, industry, etc.
- Huge range of ideas. You’ll be hard pressed to not find a theme you like with Motif Investing. Some of the themes are “Drug-Patent Cliffs,” “Couch Commerce,” “3D Printing” and many more. The possibilities are endless really.
- Extensive social network. Motif Investing takes social media seriously with the ability to synch up your social media accounts to invite friends to join and share investing ideas. Motif also has an in-house social network that allows you to share investing ideas with others and if someone buys into a motif you’ve created then you get a royalty for that.
- New trading alerts feature. Most online brokers offer some sort of trading alerts, so this isn’t really that unique. However, Motif puts their own little twist on it by allowing you to set alerts for either specific holding within your motif or your entire motif. Thus, allowing you to be notified once the selected item reaches your pre-determined value and giving the opportunity to make a decision.
- Horizon motifs. This is a newer feature Motif Investing has started. What makes the Horizon motifs different is there is no charge to invest in them. That’s the case as they’re made up of low-cost index funds that, in essence, allow you to have a target date fund that tracks the market. Again, if you want to make any customization to the motif then you will incur a charge for that – but with it acting like a target date fund you’ll be that much less likely to do so. It’s also important to point out that the specific Horizon motif you’ll be placed in will be based off of a number of profile questions Motif Investing will ask you to gauge your timeline, risk tolerance and so forth.
Advantages of Motif Investing
As has been pointed out, Motif Investing has grown in popularity with their theme-based approach. When taking a look at them, it’s easy to see why they’re growing in the discount brokerage space. Here are some additional reasons to like Motif Investing:
- They’re very low priced. Other than the idea behind Motif Investing, this is one of the best things about Motif. Nowhere else, save for an index fund, can you get access to 30 stocks and ETFs for $9.95. If you go with the Horizon motif then you can even invest for free. You can’t beat that!
- Motif Investing has a low barrier to entry. If you’re just starting investing, it can be difficult to find the funds to begin. Motif Investing makes this easy by only requiring $250 to open an account and invest in a motif. There are a few discount brokerages out there that have an entry that low, but would eat up more of your funds due to commissions.
- Instant diversification. Getting somewhere close to having proper diversification can be difficult, especially if you’re starting with little to invest. The ability to have access to 30 stocks and ETFs makes it much simpler to achieve a balanced diversification model.
- No hidden fees. Fees can cause major problems to a portfolio. Motif Investing understands that as you’ll find no hidden fees with them. Beyond that, Motif Investing does not charge any maintenance or custodial fees. This is great for new investors and veterans alike.
- Active rebalancing. Many know about the importance of rebalancing, but if you’re busy it can be difficult to find time to sit down and actually do it. If you go with a pre-made motif then Motif Investing has this covered for you. You set the interval at which you’d like to rebalance, which usually should be semi-annually or annually, and just pay the $9.95 trading fee to get this done. It is important to point out that if you go with rebalancing in a taxable account that it will cause a taxable event, but will not in an IRA.
Drawbacks To Motif Investing
No discount brokerage, or any broker for that matter is perfect. With that in mind here are some of the drawbacks to Motif Investing:
- There is no dividend reinvestment (DRIP) program. This is the main drawback to be found with Motif Investing. This may not impact you if you prefer to receive dividends in cash, but many prefer to have access to a DRIP program. Motif Investing is not entirely unique in this as someone like Scottrade has their FRIP program, but Motif is a bit behind when it comes to this. With that being said Motif Investing did recently launch a dividend specific motif that focuses on companies that have not cut their dividends over the past ten years, those who have increased them over the past five years and those considered to be high yield. So, there are options if dividends are important to you but it would be nice to see Motif Investing add a DRIP feature.
- Can be easy to rack up trading fees. This really isn’t a true drawback to Motif Investing, rather it’s more so if you like to customize pre-selected motifs. You can change out holdings for $4.95 each or an unlimited $9.95. If you see yourself wanting to make some changes, it might be more cost-effective to simply create your own motif.
Motif Investing Review – The Final Analysis
There are many discount brokerages to consider when it comes to investing. A simple Internet search will bring up hundreds or more to choose from. This can make selecting an online brokerage an overwhelming choice. Motif Investing understands that and has done a great job differentiating themselves, making them a solid option for those new to investing and looking for instant diversification to those simply wanting a secondary investing option.
The intriguing thing behind Motif Investing is their theme-based approach to investing. This allows you to invest in something you have an interest in as well as having the ability to significantly lower the amount of fees you’re paying to meet your investing needs.
As is the case with many other discount brokerages, Motif Investing does offer a promotion for opening a new account. You can get up to $150 cash back for opening a new account which isn’t bad at all, especially with the low barrier of entry coming in at $250 to open an account.
Motif Investing is a great option for those just starting out investing or someone wanting a theme based approach to part of their investing.