05 Jul What is Motif Investing and Does it Belong in My Portfolio?
Note: I do NOT receive any commissions from writing this review, although I wish I did. All opinions expressed in this article are not influenced by any third parties. Any information should not be construed as investment advice either.
I recently came across Motif Investing, a startup that focuses on an alternative way of investing. The company was co-founded in 2010 by Hardeep Walia and Tariq Hilaly. They are both smart guys with business degrees from Wharton and HBS, respectively. Hardeep was an executive at Microsoft while Tariq belonged to Alliance Bernstein, a large hedge fund. This means serious experience with money.
What is Motif Investing?
I would consider Motif Investing a hybrid between individual stock picking and indexing. The premise is that in a “motif”, you have up to 30 stocks or exchange traded funds (ETFs). Each stock in the motif shares a common outlook, and one of the presumed advantages is that you can own a set of stocks that provide an appropriate amount of exposure to the market.
There are at least 150 predefined Motifs to choose from. When you first sign up with them, you can complete a survey to analyze your “Investment DNA”. Some Motifs include Horizon Models, “Biotech Breakthroughs”, “Housing Recovery”, and “Eating Out”. Obviously each motif has a catchy title to represent your investment sentiment. The “Eating Out” Motif holds stocks in fast food chains, casual dining chains, cafes, and fine dining establishments.
How Much Does Motif Investing Cost?
One of the advantages of Motif Investments is that the purchase of each Motif is CHEAP. You are charged $9.99 for a purchase that contains up to 30 stocks or ETFs. This means that each stock trade is only $0.33! I don’t have the details on how Motif is able to accomplish this but I’d imagine part of this comes from have a set volume of trades and some relatively deep pockets in their funding. I don’t know if the trade costs are part of the burn rate of the company.
If anyone from Motif wants to enlighten me, please contact me through the website!
All of the Horizon Motifs incur no transaction costs as well. For instance, if you purchase the Horizon 1-Year Aggressive Motif, you will get a mix of VTI, BNDX, BND, VXUS, IVR, and GSG at no trading costs! Great deal, if you ask me.
If you decide to customize your own motif, you are charged $4.95 to change a single stock or $9.99 to change your entire motif.
What Advantages Does Motif Investing Confer to Me As A Doctor?
As mentioned above. Spending less than 10 bucks for 30 stocks is a steal. If you are computer savvy and a data junkie, Motif Investing offers you all of that. You get data points of all of Motifs, nice graphs, and plenty of information to maximize your “control” of your portfolio. The amount of data available to interpret is amazing, and Motif’s interface is a data junkie’s paradise.
There is a strong social presence on Motif. There are commentary options throughout the entire website, and you can also share your motifs on Facebook, Twitter, and Linkedin. Is this an advantage? I’m not sure, but you have all the options to share your investing prowess to the world. Conversely, the world also has the opportunity to critique your investments as well.
What Disadvantages Does Motif Investing Have?
If you are investing in a taxable account, all dividends are paid out. There is no DRIP option to reinvest dividends. That means you lose the ability to dollar cost average commission-free, albeit in small amounts. I’d imagine that this may be resolved in the future, but it is a pain to get small amounts of dividends paid out when you are investing for the long haul.
While not exactly a disadvantage, there’s no magic formula in investing. Motif provides a framework to select categories of investments that suit your interests, but it’s unclear to me that long term this will confer advantages. Yes, you feel like you are in more control, but if you look at many of the motifs available, they have incurred losses over the past 12 months, just like the how their underlying stocks have performed individually.
I think that Motif Investing offers an interesting spin for the techie world. You get some advantage of an immense amount of data to make your decisions, and you might get some diversification from owning up to 30 stocks with one trade. However, you still aren’t protected from human idiocy. If you decide to play margin (which is available) and lose big, you’re still out some money. If you like buying and selling to time the market, you can still do it and incur transaction fees.
Most non-finance professionals (read: doctors) aren’t really going to benefit largely from having these options. We doctors as a whole are bad businesspeople and bad investors. Even those of us who claim to understand biotech firms and have medical knowledge of pharmaceuticals are not necessarily going to do well with biotech stocks. Instead of buying individual stocks in a particular genre, you get up to 30. Big deal. If you’re going to get rich with stock investing through Motif, you’ll likely have gotten rich without it.
I may consider using Motif in the future when I have ancillary income. It gives some more diversification to individual stock picking that I itch for, but I definitely won’t put all of my taxable income in Motif.
What opinions do you have for Motif Investing? Have you had experience investing through them?