As I mentioned recently, the individual stocks and ETF’s I invested in last year returned more than 33%. As a once buy-and-hold index fund investor, my foray into individual stock investing is something I never would’ve guessed five years ago. As happy as I am with the results so far, investing in individual stocks those presents several challenges.
The first challenge is cost. While discount brokers offer low-cost trades, these costs can add up over time. Second, in order to build a diversified portfolio of individual stocks, you typically need to invest in at least 10 companies if not 20 or 30. For someone who is used to investing in a mutual fund for free, and letting the fund company to all of the heavy lifting, individual stock picking has been a lot of work. And that brings me to motif investing.
When I first heard of motif, I thought it was a bit silly. Having spent some more time with this unique online broker, however, I’ve come to realize that it offers a valuable service for those wanting the benefits of individual stock investing combined with the ease of mutual funds. So as I consider opening an account with motif investing, it seemed like a detailed review of its services was in order.
How it works
The concept With Motif is simple. The folks behind Motif look for ideas that could create an investment opportunity. Once a motif is identified, they then select up to 30 companies related to the idea, and weight them according to how well they fit the investing idea. Investors can then increase or decrease how much of each company is reflected in the motif. And finally, investors can invest in the motif for a flat fee of just $9.95.
As an example, one “motif” that is available is called the “Dividend Stars.” As the name suggests, this motif is comprised of dividend-paying stocks that have not cut dividends for at least 25 consecutive years while growing in the prior year, and a composite dividend yield of 4.0%. Here are the companies in this motif:
Notice in the far left-hand column is the “weight in motif.” This tells you how much of each company’s stock is reflected in the motif. For example, if you invested $10,000 in Dividend Stars, 5.3% or $530 would go to purchase shares of Kimberly-Clark, 4.9% or $490 would go to McDonald’s stock, and so on.
One of the great features of Motif Investing is that you can customize each motif. Before investing in Dividend Stars, for example, you can change how much of your money will go to each company in the motif. You can even eliminate some companies from the portfolio if you want. And you can do this with an easy to use slider; just a click of the mouse really.
You can also add stocks to any motif or completely remove one or more stocks. A motif is completely customizable.
Long time readers of Dough Roller know that I always focus on fees. Whether it’s the expense ratio of a mutual fund or trading costs of a broker, minimizing fees is critical to the success of investors. It’s one of the reasons I use Personal Capital everyday–it tracks costs of your investments, including 401(k) costs.
With Motif Investing, costs are extremely low. The above Dividend Stars motif includes 20 different stocks, yet you can invest as much as you want for just one fee of $9.95. To buy each of the 20 stocks through a discount broker would cost about $100. It’s also inexpensive to sell. You can sell the entire motif for just $9.95. You can also sell any individual stock within a motif for $4.95.
Build your own
Motif Investing has developed a lot of motifs that cover just about everything you can imagine. From dividend investing to biotechs to the dogs of the dow, they have just about everything. Still, if you want you can build your own from scratch. It’s as simple as naming your motif, adding up to 30 stocks and/or ETFs, and then buying the motif.
Motif offers some features that took me by surprise:
- IRA Accounts: It offers no-fee IRA accounts–Traditional, Roth and Rollover.
- Target Date Motifs: They offer 8 motifs based on when you expect to retire. As you near retirement, the allocation in the motifs automatically adjust to reflect a more conservative approach.
- Fixed Income: Using bond ETFs, you can create a fixed income motif.
The last feature I’ll mention is the social component of Motif Investing. This is a feature you can use if you want, or keep you investing completely private. But the idea is to share ideas with other investors, and to learn from others as well.
You can create your own circle of friends to share investing ideas. Motif can integrate with Facebook to help you build your circle. You can also see how others view each motif. Are there more bulls than bears for the Dividend Stars motif, for example. Motif will tell you. And you can cast your own vote for each motif.
Motif Investing offers an easy, fun, and low cost way to invest. It’s not your traditional online broker. But it gives investors who traditional have stuck with mutual funds a good reason to wade into stocks and ETFs. It offers a reasonable balance between complete control over you investments and letting others help you along the way.