Motif Investing is a new twist on stock market investing with fees a fraction of other investing sites
Did you know the average investor loses around $700 a year through investing fees? It’s one of the single biggest factors in poor investment returns.
One of the biggest risks in investing isn’t picking the wrong stocks or getting caught in the next stock market crash, it’s the high fees paid on trading in and out of your investments. Even at $10 a trade on the inexpensive investing sites, you could be paying thousands in fees every year to buy a diversified portfolio.
How can you avoid throwing your money away on investing fees?
I just heard about one investing website late last year that is changing all that and offers a way to buy stocks for a fraction of the cost. Besides the cost savings on buying stocks, the new way of investing also means you are instantly diversified in a group of stocks to lower your risk.
I transferred some of my investing portfolio to Motif Investing in February and have already started investing through four funds I created.
I’m convinced Motif Investing is one of the best ways to invest through its low-cost and instant diversification…and I think you’ll agree after checking out the review below.
Investing in the Stock Market with Motifs
Motif Investing allows you to create your own group of stocks in a fund, similar to a mutual fund or exchange traded funds. If you haven’t heard of these, the idea is a group of stocks around a common theme or investing idea.
You might have a Motif that holds stocks that pay high dividends or one that holds stocks of companies that will benefit from long-term trends in the economy.
You can put up to 30 stocks or funds in each Motif and by investing in the entire group at once, you lower your risk because you aren’t as worried if one particular stock plunges. Even if one company goes bankrupt, it might only be about 3% of the group so you can still make a solid return on the others.
The best part in all of this?
The best part though is that you only pay one commission to buy the whole group of stocks. That’s 30 stocks for the $9.95 commission, something that would cost upwards of $300 on just about any other investing website. Fees can really eat into your investing earnings, especially if you are buying stocks each month or even every few months.
Buying a diversified portfolio of stocks can cost you thousands a year in fees…except on Motif.
The website offers more than 100 motifs, some created by Motif Investing and others created by other investors. You can invest in these or create your own fund specifically for your needs. You can invest as little as $250 in each fund and can invest in as many funds as you like.
There are no annual costs or expenses for the account. As an incentive, Motif Investing is offering a bonus of up to $150 on new accounts. Invest in one motif within the first 45 days and they’ll deposit $50 into your account. Invest in three motifs and you earn $75 or invest in five motifs and you earn $150 for your account.
Basically, they are going to pay your $50 in commissions and give you a $100 bonus. You’ll get exposure to 150 stocks in five different funds, enough to diversify your portfolio if you choose a good mix of funds.
Customer service is excellent. I opened my account two weeks ago and have received three phone calls asking if I had any questions on investing or if they could help in any way.
For new investors or those not experienced with investing in the stock market, it might take a little time to really understand how to invest in funds. Besides the idea of diversification and lower risk, it’s a much cheaper way of investing in the stock market.
But low-cost isn’t the only reason I use Motif Investing…
It’s also, in my opinion, a much smarter way of investing in the stock market. A lot of investors lose money because they fixate on company-specific details and ‘picking’ the next hot stock. There are investors like Warren Buffett that have been investing in the stock market for decades and have a difficult time doing that. Some would argue that it’s impossible to consistently pick individual stocks that are going to ‘beat’ the market.
A smarter strategy is to invest in larger ideas, themes that have the power of the economy and demographics behind them. These are things like, which stocks will benefit from the aging population or the revolution in U.S. oil production. Your investment doesn’t depend on how management runs one specific company but on a larger trend that will drive a whole group of companies for decades.
In fact, that’s exactly what I’ve done with my four investing funds on Motif. Check out My Stocks and Bonds to see the four funds I created for dividends, growth in America’s future, retirement and to track Warren Buffett’s portfolio. The four funds give me exposure to hundreds of stocks and have all out-performed the stock market since February.
You can browse one of the 100+ motifs or create your own around a theme. You can change how much is invested in each stock, favoring some while limiting exposure to others. All motifs show you how the group of stocks has done over the last week, three-months, one-year and five-years.
When you’ve customized the motif how you want it, you buy with one click.
Why do I need motifs for investing in the stock market?
But if there are already mutual funds and ETFs, why would you need to invest in motifs?
After the initial commission to invest in the motif, you won’t pay any fees on your investment. Mutual funds are notorious for charging high annual fees, nearly 1.2% a year on average. Even the cheaper alternative in exchange traded funds charge an average fee of 0.63% a year. It may not seem like much but most fund managers struggle to match stock market returns anyway and end up lagging the market after fees.
Another reason to use motifs for investing in the stock market is the ability to customize motifs for your own needs. You can fit a motif around your own risk tolerance and time horizon. This isn’t possible in managed mutual funds or ETFs.
There are a couple of drawbacks to Motif Investing. The site doesn’t offer as many research tools or reports compared to other platforms. I have kept my Scottrade account open for access to reports from research sites but am now investing in the stock market mostly through Motif.
The website also doesn’t offer banking services or a dividend reinvestment plan. It is a relatively new platform and I imagine these services will be offered in the future. I didn’t use the banking services at Scottrade anyway so it doesn’t bother me.
What Motif lacks in research tools, it completely makes up with its social network investing. The social community allows investors to comment and share their own research on the motifs. I found 24 comments in the discussion of a Motif around a rising rates scenario, including comments from the founder Hardeep Walia. The comments include links to research and news that really help to analyze an investing strategy.
I’ve discovered one more huge use for Motif Investing since posting this review. It’s one I hadn’t thought about but a lot of fun and really useful. Whenever you create a motif, you have the option of making it public for other investors to see. Most investors do this and there are more than 12,000 motifs viewable on the site.
That makes for a great resource to get investment ideas about stocks to buy! You can sort through the funds by category, one-year return, dividend yield and many other measures to find the best investments for your portfolio. It’s really helped me find some excellent stocks.
An interesting new set of motifs that everyone will want to check out are the horizon models. These are groups of stocks and bonds to match your time horizon for money. Say you want to make a down-payment on a house in a year but don’t want to let your money sit in a savings account. The one-year conservative horizon motif holds 63% of the fund in relatively safe bonds with smaller portions in real estate and stocks. There are also horizon funds for five- and 15-years with moderate and aggressive plans.
I plan on covering some of the existing motifs and creating more of my own motifs in future articles. I’ll talk about how different motifs may be more suitable for different investors and how to construct a motif around a theme that fits your own needs.
Any investing in the stock market needs to start with your own personal investment plan that looks at your specific goals and risk tolerance. I would also recommend everyone check out these stock market basics to make sure you get started right and how to avoid the traps that lose people money.
Motif Investing is an interesting new twist on investing in the stock market, lowering investing costs to a fraction of what they are on other investing sites. You get instant diversification in each fund and no annual management fees. Check out the site and compare the fees with other investing sites and I think you’ll like it just as much as I have.