Motif investing is a company that specializes in investing in ETFs or individual stocks. In this Motif investing review, we cover all aspects of this intuitive platform (including the pros and cons). So you can decide if it’s right for you.
When it comes to investing, there’s lots of ways to avoid putting all your eggs in one basket. You could simply:
- Pick a target date retirement fund which selects an appropriate allocation of stocks and bonds based on your anticipate retirement date. Not only does it rebalance itself automatically, but as you age, the fund becomes more conservative, increasing the percentage of bonds in the fund. Although simple and automatic, these funds don’t offer much customization, other than picking the estimated date of retirement.
- Pick a static combination fund such as Vanguard’s “Life Strategy” funds. With these funds, you pick the degree of risk (e.g. growth, income, conservative ) which dictates the percentage of stocks and bonds. The fund auto-rebalances itself to the desired percentages but the percentage of stocks & bonds remains constant and does not change as you age.
- Buy your own funds in whatever percentage allocations you desire. With this approach you are responsible to rebalance the portfolio and make changes over time as needed.
- Pay a “Robo Advisor” like Wealthfront or Betterment to pick an allocation based on your risk tolerance and let them maintain it for you. This service typically costs approximately 0.25% of the account value each year.
Those interested in creating a complicated asset allocation with five, 10, 15 or even 30 ETFs/stocks might indeed be interested in a solution which aims to make that simpler and potentially cheaper.
What is Motif Investing?
Motif Investing is an insured brokerage firm which specializes in simplifying the process of buying fractional shares of multiple stocks and ETFs, paying a flat rate commission per transaction. The collection of up to 30 ETFs/stocks is called a “Motif”. Motif Investing has created various motifs themselves, which they call “professional motifs”. “Community motifs” are created by individuals. Community motifs are shared on the platform and can be selected by other users.
Motif Investing offers several types of Accounts:
- With a “Trading” account, you can buy a “motif” of up 30 ETFs and/or individual stocks for a flat commission of $9.95. Each time you transact with a “motif” the fee is an additional $9.95. A motif transaction could be rebalancing it back to its original proportions, buying more of it, or selling some or all of it. If you want to sell just one fund/stock contained in a motif, the commission is $4.95. If you wanted to invest money each month consider a “Motif Blue” account.
- “Motif Blue Standard” is $9.95/month, includes “automated investing” and rebalancing of any “professional motif” subject to some important gotchas described below. It comes with one free motif or stock trade/month. Their “Motif Unlimited” for $19.95/month features auto-investing of three motifs, auto-rebalance of any professional motif, and three free motif transactions/ month (or commission free trades).
- With an “Impact” account, you answer questions about risk tolerance and objectives and they take it from there. In this type of account, you can’t pick specific funds and allocations–they decide for you. As you age and approach retirement, the allocation changes. Their “glide-path” feature aims to address your needs as you “glide” towards retirement and thereafter when you are in retirement. The fee is $10/month for each $100,000 in the account (e.g. $99,000 is $10/month and $101,000 is $20/month). With an “impact” account, it is set-it-and-forget-it !!!
I initially considered a Motif trading account because I wanted to invest separately from my Vanguard accounts. I wanted to leave it there for 20 years and only rebalance once/year. Paying only $9.95/year seemed like a great deal and it would spare me from manually rebalancing 13 ETFs. I had this particular Paul Merriman allocation in mind:
Doing it manually at Vanguard
Some D.I.Y. investors would simply create a separate Vanguard account and buy the ETFs directly, without opening a separate Motif account. Buying Vanguard mutual funds and Vanguard ETFs are free. But you may be charged a commission to buy non-Vanguard ETFs and stocks. The commission to buy non-Vanguard ETFs is $7, $2, or free, depending on how much money have invested at Vanguard:
|Assets Invested in Vanguad||Trade Cost|
|Less than $50,000||First 25 Trades - $7
Subsequent Trades - $20
|$50,000 - $500,000||All Trades - $7|
|$500,000 - $1 Million||All Trades - $2|
|$1 Million - $5 Million||First 25 Trades - Free
Subsequent Trades - $2
|$5 Million +||First 100 Trades - Free
Subsequent Trades - $2
Since Vanguard doesn’t let you buy fractional shares, doing this yourself at Vanguard would require some extra work to determine how many whole shares you can buy.
The Vanguard ETFs listed in the motif above are also available as mutual funds at Vanguard. Some people prefer mutual funds because you can buy exactly how much you want and can setup automatic purchases without regard to commission issues. This is a great article about the difference between ETFs and Mutual funds.
“Admiral” mutual funds at Vanguard have a lower expense ratio but often have a $10,000 minimum; “Investor” mutual funds have a higher expense ratio but often a lower minimum (often $3,000). Buying ETFs gives you the advantage of lower “Admiral” expense ratios even if you are not buying $10,000 of it. For example, if you have $5,000 and want to invest in 10 items, using ETFs will get you rock bottom expense ratios without needing $10,000 for each item.
For a one-time, buy and hold investment, with once/year rebalancing, Motif is indeed appealing. IIt’s clearly easier and potentially cheaper than buying each fund individually at Vanguard. However, if you intend to invest money each month, doing so with Vanguard Mutual Funds incurs no monthly subscription fee or commissions.
Satisfy your inner “Day Trader”
The Motif platform makes it easy to browse a huge array of motifs with enticing returns:
For example, the Online Gaming World motif had a one year return of 53.8% and was composed of the following:
So, for $9.95 you could easily buy a motif such as this. Or subscribe to Motif Blue Unlimited and get three Motif transactions each month.
Motif Impact Account Pricing
If you didn’t want to deal with all this complexity, and simply wanted Motif to manage your money, the fee is ($120/year Per $100,000) which depending on the account balance can be cheaper than some Robo Advisors which commonly charge .25%:
Motif Terms and Conditions
As with so many things, there are caveats, terms and conditions. These are some noteworthy ones:
- Motif Blue’s automatic investing is limited to the 146 professionally designed motifs created by Motif Investing. Automatic investment is also permitted for any motif that you have customized or built from scratch because you are considered its owner.If you signed up with motif investing for easy execution of the 70 motifs created by Paul Merriman, you cannot use their automatic investment feature. The workaround is to create your own motif based on Paul’s allocation so that you are considered its owner. The downside of this approach is that you will not get updates from Paul if he changes allocations or motif composition. The downside for Paul is he won’t earn a recurring $1 commission on the $9.95 motif transactions.
- The one or three “free” motif transactions each month with the Blue subscription do NOT roll-over. Use it or lose it!!!.
- I was really surprised to learn that the original motif percentage allocations are not stored in the motif when you buy it. For example, let’s assume motif contained 4 ETFs: 50%,25%,13%,12%. One year later, it drifted to: 60%,20%,14%,6%. If you thought you could click a button to get you back to the original allocation, surprisingly you can’t. Therefore, make sure to screen–shot the original allocation percentages because you will need to type in each of the percentages to rebalance the motif.
- If you modify a professional or community motif, you then are the proud owner of a modified motif. This means no notifications from its creator.
- Let’s say you envisioned buying a Paul Merriman motif and just paying $9.95 each year to rebalance it, here are some important considerations. If Paul changes its composition, you will be notified by email and on your motif dashboard. If you accept the change, it will cost you $9.95. More importantly, if it is in a taxable account, this could trigger capital gains tax consequences. n a taxable account, I’d prefer to carefully consider what to sell and not click one button which could sell 15 ETFs at once. If you reject the changes from the motif creator, or if you tweak it on your own, it is then considered “modified”. You won’t receive notifications anymore.
- Although stock dividends are automatically reinvested in a motif, if the ETF declares a cash dividend, it will not be. Cash dividends sit in your motif account earning zero interest until you manually purchase something with it. There is a $250 transaction minimum.
- If you want to regularly add money to a motif, dollar cost averaging over time, you pay a monthly subscription $120/year per $100,000). You can auto invest into multiple mutual funds for free at Vanguard and other firms.
- If you decide to leave Motif investing, there is an exit fee of $95 (or $65 to partially transfer out some assets).
- For Motif Blue users of a professional motif, rebalancing is done automatically once/week.
- Motif Blue Starter plan at $4.95/month is being retired, despite appearing on the price list.
Take Control, Take Responsibility
If you are hands-on enough browse motifs and make selections I recommend you clone a motif so you are considered its owner. This gives you maximum flexibility and control. It means you can decide when to rebalance. You won’t be subject to its creator changing its composition, especially in a taxable account.
As an additional benefit of being the motif owner, if you’ve fallen in love with the motif, you can subscribe and auto-invest in it each month.
How to Manage Your Motif Investments
Track and Analyze your Investments for Free: Managing investments can be a hassle. You may have multiple IRAs, multiple 401ks, as well as taxable accounts, including Motif. And then there are bank accounts. The easiest way to track and analyze all your investments, regardless of where they are located, is with Personal Capital’s free financial dashboard.
Personal Capital enables you to connect all of your 401(k), 403(b), IRAs, and other investment accounts in one place. Once connected, you can see the performance of all of your investments and evaluate your asset allocation.
With Personal Capital’s Retirement Fee Analyzer you can see just how much your 401k and other investments are costing you. I was shocked to learn that the fees in my 401(k) could cost me over $200,000!
Personal Capital also offers a free Retirement Planner. This tool will show you if you are on track to retire on your terms.
- Motif Investing offers a unique service for those investors who want to buy collections of stocks and ETFs easily, for a flat commission of $9.95.
- If you act like a day trader, buying lots of $1,000 motifs, the commissions will add up fast but are still cheaper than paying $4.95 per trade.
- Create your own motif so you can control when it is rebalanced. This is especially true if you want to use Motif for a buy/hold/annual rebalance over a long period of time.
- If you want someone else to deal with rebalancing (either with their allocation or yours), Motif can do so less expensively than other Robo Advisors, depending on the fund balance.
- Beware automatic rebalancing in a taxable account due to potential capital gains.
- Motif Investing offers some interesting solutions which might be helpful, depending on your investing motif.
- However, after diving into Motif Investing, I ultimately decided to create a separate Vanguard account and do it myself.