Want to Make Your Own ETF? Now You Can With Motif Investing – Here’s Our Review

content_motif-logo_newLong time readers know my usual thought on choosing a stock broker – it hardly matters.

Most are almost all the same.

I typically recommend something along the lines of Vanguard or Fidelity, because of the access to commission free, low cost ETFs that those brokers provide.
I have been mostly invested with Vanguard for a few reasons: They provide a ton of lost cost mutual funds and ETFs that account holders can buy commission free, which makes small monthly investment feasible without commission taking huge chunks out. Vanguard also offers dividend reinvestment and partial share ownership for individual stocks and ETFs. Vanguard is still an excellent broker – and I will certainly continue to use them, But…

There is a new player in town which is a game changer for investors, whether you are a stock picker OR pure indexer.

And what’s best? New investors can take advantage of a special offer – up to $150 for those who create a new account today. Offer details are at the bottom of this post!

 

MOTIF INVESTING

Motif investing is much more than a simple stock broker. It allows users to:
• Essentially create their own ETF or Mutual fund (called a “Motif”) of up to 30 individual stocks or individual ETFs.
• Rebalance all those 30 stocks or ETFs with 1 click and a low fee.
• Access to several commission free “Motifs”.
• Allows users to share and compare their “Motifs” with others. Watch and compare historical performance, dividends, volatility and more.
• Allows others to buy into your “Motif” – and pays YOU a commission!

Motif Investing offers all this for:
• No monthly/annual fees (compare that to the average of 1.1% or 0.63% in annual fees for mutual funds and ETFs, respectably)
• $9.95 commission for purchase of up to 30 stocks (Not $9.95 for each stock! $9.95 TOTAL – or as low as 30 CENTS per stock! How does that compare to your broker?)
• $9.95 rebalancing of up to 30 stocks at the click of a mouse. (How much would it cost you to buy and/or sell each one of your stocks to rebalance them?)
• $250 minimum for investing in motifs.

Why is Motif such a game changer? Lets look at Motif’s features more closely and see how it compares to your broker.

 

GETTING STARTED

 

Creating an account with Motif Investing is the same as any other broker. After a simple 1 page form, my account was up and running in about 20 minutes and funded in 3 days.

 

Motif_-_create_new_account_welcome

 

CREATE YOUR OWN ETF OR MUTUAL FUND WITH MOTIF INVESTING

Now the fun part.

How easy is it to use Motif? Add stocks into your own fund with a few clicks of a mouse.
Here is a custom built and custom weighted Motif created in about a minute:

Add up to 30 stocks and/or ETFs to your Motif, weight those stocks by market cap, or any customized setting, hit publish and you are done.

Once your motif is created, you can compare it to the thousands of others available. Here is a motif I made consisting of oil companies:

motif_-_your_created_motif

 

OR, BROWSE OTHER MOTIFS

Don’t have what it takes to be an ETF manager? There are thousands of other Motifs that you can invest in.

Motif_-_compare_motifs

COMMISSION FREE MOTIFS

Motif Investing also offers a few (currently – 9) commission free motifs. Referred to as “Horizon Motifs”, these are set up with specific asset allocations to match an investors desired risk level and timeframe. They trade commission free and are free to rebalance, here is the fine print:

$0.00 commission for trades (buys, sells, following rebalances) for the benchmark versions of the nine Motif-created Asset Allocation Horizon motifs. Commissions for any Horizon motifs that are customized in any way – adjust weighting, add or remove securities, choose not to following rebalance event, will include a $9.95 total commission per motif transaction or pay $4.95 per stock for individual stock/ETF transactions. Regular commissions apply for other Motif-created benchmark motifs and customer-created customized motifs ($9.95 total commission per motif transaction or $4.95 per stock for individual stock/ETF transactions). Other fees may apply. Motif reserves the right to review and amend the commission pricing structure at any time in the future and will notify you in writing of any intended changes.

For example – a “conservative 5 year” horizon Motif looks like this:

motif_-_horizon_example


Commission-free Horizon motifs: Assets allocation models tailored for your horizon and risk toleranc

 

CREATE YOUR OWN ETF OR MUTUAL FUND WITH MOTIF – AND GET PAID COMMISSION

Another unique feature for motif investors is the ability to actually make money by allowing other investors to buy into your motif.

This is Motif’s Creator Royalty program. Each time another investor purchases your motif – you get $1.

Competition amongst motif creators is fierce, but I would imagine popular motifs could easily generate $50-$100.

 

COMPARING BROKERS

Now that we have a detailed explanation of how Motif works, lets see how a typical investor would benefit from using Motif instead of a traditional discount broker.

Consider a typical discount broker (Scottrade, E-Trade, etc.) that charges a flat $7 commission.
And lets say that you want to purchase 5 stocks or ETFs. At a traditional broker, this costs you $35. Annual rebalancing could run as much as $70 each year, for a total of $105.

With Motif Investing, it would cost $9.95 to purchase all 5 of those stocks, and another $9.95 when it comes time to rebalance. For this hypothetical investor, Motif would save them about $85 a year.

Own more stocks than 5? Then your savings would increase!

“But I’m Just a Passive Index Investor….”

There is potential for even the strictest of indexers to save large sums of money with Motif as well.

We have discussed the long term costs of expense ratios frequently on Begin To Invest. A $10,000 investment in an ETF with an expense ratio of 0.5% (which is below average) will still cost an investor $7,000 over 30 years. (How did we get that? Check out our Expense Ratio Calculator )

But, a Motif investor could simply buy most of the stocks in the index in a number of motifs and never pay an expense ratio. There would be higher initial costs, but you would benefit greatly by not paying any expense ratios for the life of your investment (see below).

One could create 10 Motifs with 30 stocks each for $100 with Motif investing, which would be much higher than a simple $7 commission for an index fund that a standard broker would charge, but over time investors would be made whole by their increase in performance by not being dragged down by expense ratios.

Consider 2 hypothetical investors with the numbers from our example above. Investor 1 has $10,000 to invest and buys an index fund consisting of 300 stocks that has an expense ratio of 0.5%. Investor 2 buy 10 motifs, with 30 stocks in each motifs and pays $100 in commissions.

Obviously it hurts investor 2 a little bit to have to pay $100 in commissions, and that investor would have to pay to rebalance this portfolio as well (which is as easy as a click of a mouse with Motif), which would result in $100 per year in additional fees.
But even with $100 each year in rebalance fees with Motif, Investor 2 comes out nearly $5,500 ahead after 30 years assuming a 6% growth rate. (And that’s just on a one-time $10,000 investment! – the savings would compound over decades of steady investing!):

 

motif_saves_money_for_indexers

 

Motif is not perfect, there are a few features that it lacks:

• No dividend reinvestment
Which granted, would be very complicated with a Motif of up to 30 stocks. But, when compared to a broker like Vanguard that offers free dividend reinvestment combined with partial share ownership, will certainly create a drag on performance.

• Researching individual stocks is hard
This may not be a big deal for those who do not use their current broker’s tools for stock research. Motif makes it very easy to add stocks into a Motif, but redirects you to Yahoo Finance or Google Finance for any bit of deeper analysis. You will want to have your list of stocks ready before creating your own fund.

• No automatic investing

Long time readers of Begin To Invest know that typically investors are their own worst enemy. We try and time the market, and it usually doesn’t help us. For this reason features like automatic investment at Vanguard and other brokers keeps us investing no matter what the market is doing. At vanguard I can set up an automatic $458 per month ($5,500 per year – the maximum allowable for a IRA/ROTH IRA) and forget about it. With Motif Investing, you have to remember, or potentially worse, have to want to invest each time. This might make it easy for those less disciple investors to skip their investments and attempt to time the market.

Conclusion

Even with some potential faults, Motif is a game changer in the finance industry. Whether you are an active stock picker or passive index investor, Motif Investing offers features that no one else in the industry has that makes managing your investments easier, more fun and much cheaper.

Ready to get started?
Begin To Invest has partnered with Motif Investing, and we can offer investors a little something special. Investors who open up an account today can get up $150 to trade. See offer below:
Open an account today and Get up to $150 when you start trading at Motif Investing. Learn more here.

 

Want to see how we have used Motif for other articles on Begin To Invest?

Using Motif Investing to Clone the Portfolio of a very Successful Mutual Fund – and Eliminate the Expense Ratio

Using Motif Investing to Create the First Property Rental Fund

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