Motif Investing Adds New Passive, Index Fund Portfolios

Motif Investing is a new brokerage firm that is unique in that it lets you buy an entire basket of up to 30 stocks for only $9.95 per trade. I previously thought that this would be useful to creating your own “custom ETF” of whatever you want, for example dividend stocks.

This week, they rolled out a new set of “motif” baskets which are focused on passive, index fund strategies. I’m happy to see this, although in my opinion some are hits and others are misses. You can find them under the “Investing Classics” category:

  • Permanent Portfolio. Based on the Harry Browne Permanent Portfolio of 25% stocks, 25% long-term bonds, 25% cash (short-term bonds), and 25% gold. Their implementation seems a bit needlessly complex, however, as they use over 15 ETFs to replicate international stocks when they could have just used something like Vanguard Total International ETF (VXUS). But again, you can edit and customize the motifs to simplify down to 4-6 ETFs. Still, buying 5 ETFs of your choice in one go for $9.95 isn’t bad, and they will even rebalance for you as well.*
  • Target Date Motifs. Based on target-date retirement funds, you can choose for example “Retiring 2050″ or “Retiring 2030″. I’m not a big fan of this one, if you want to go this route I’d just stick with the Vanguard Target funds bought directly from Vanguard for no commission fees at all and the highest level of simplicity.
  • Ivy League. Based on the Yale Endowment manager David Swensen portfolio. Nice and simple, just the 6 ETFs matching each of the asset classes as described in his book Unconventional Success. I’m biased of course, as my own portfolio is very similar to this.
  • Index Fans. Supposedly based on the Boglehead philosophies of Jack Bogle, founder of Vanguard. I don’t know why they chose to use a combination of the Total World Stock ETF (VT) and Total US (VTI), when VT is already 50% US stocks and hold a lot less companies (and thus less diversification) as compared to holding US and non-US separately with VTI and VXUS. Or why they didn’t just use a single Total Bond ETF (BND) for bonds. I’m thinking they didn’t actually get official Bogle approval, nor did they read the Bogleheads book.

*Excerpted from a previous interview with Tariq Hilaly, Motif Investing’s Co-Founder & Chief Investment Officer:

MMB: Does the motif ever “rebalance” in the future back to the original weightings to prevent drift?
A: Yes, we rebalance most motifs on a quarterly basis. On rare occasions, with longer-term investing strategies that take longer to play out, we rebalance once a year.

$150 Sign-up Bonus.

Motif Investing is also offering a $150 cash bonus when you open a new brokerage account with $2,000+ and make 5 trades at $9.95 each. If you make 1 trade, you’ll get $50. 3 trades will get $75. The new funds must be posted to the account within 10 calendar days of account opening, and must remain in the account for 45 calendar days.

Comments

  1. Thanks for pointing out that VT holds significantly fewer stocks than VTI+VXUS. I had assumed, based on Vanguard’s description of VT, that it was approximately the same as VTI+VXUS. I currently hold it for temporary reasons despite its higher expense ratio. Now I’ll be even happier to sell it off (and to buy more VTI and VXUS instead).

  2. Hey Jonathan,

    This is kind of a random question: Do you know what the easiest, most reliable way is to check current market cap weightings? This is for those of us who want to invest according to the total market. Right now, it might be fine to just allocate 50%/50% to US equity and global ex-US equity, but it’s conceivable that over time, the actual markets will drift. Maybe in 10 years the market will be 30%/70% US/non-US, then folks who stick with 50%/50% will be overweight US stocks and exposing themselves to diversifiable risk. The trouble is that I haven’t found an objective way to keep track of this that regularly gets updated as the markets change (short of just checking the allocation of VT). It gets even more difficult the more specific I try to get (e.g., the total market cap of all ex-US small caps). I’m sure if I worked for a financial firm and had institutional resources there’d be a place to look it up, but there’s got to be a simpler way to do it as a private investor, right? I’m sure there are others in my position.

  3. Yup, VT is more expensive and has less stocks. I don’t think it’s a huge deal, perhaps being more expensive would be more significant over the long run.

    VT has 3,913 stocks, expense ratio 0.22%

    VTI has 3,278 stocks, expense ratio 0.06%
    VXUS has 6,214 stocks, expense ratio 0.18%

    As for US/exUS market caps weightings, I just use the pie chart on the bottom of the page of VT.

    https://personal.vanguard.com/us/funds/snapshot?FundId=3369&FundIntExt=INT

    Or Morningstar. But you can also look in the underlying index that it tracks, and then go to the index provider for more information. MSCI, S&P, etc.

    I don’t really worry about the exact world weightings, I’m okay being a little overweight US, it dampens the currency risk coming from VXUS as I’ll be spending dollars in the foreseeable future and being 50/50 keeps things simple.

  4. I agree reference the Bogleheads comment. I just took a look at their index fans basket and it does not resemble anything close to a Boglehead investment strategy. However, I do think they’re just referring to indexing as a whole. Overall, meh.

  5. I would really consider using them for a dividend portfolio if they had dividend reinvestment.

  6. Do you use Motif? I was about to open an account last year until I read about all the uncertainty around the headaches of tax reporting (because of the ownership and constant buying/selling of lots of stocks)…is this still a concern?

  7. “Buy and Sell” are counted as two trades? If so, I spend about $50 to get $150 while holding $2,000 for 45 days? not bad!

  8. Note that Motif’s site explains why they weighted things as they did in the Index Fans portfolio, just click “How We Built This Motif.” Excerpt:

    “Within the equity allocation, US Equities and International Equities were given a 66-33 split.” and “Securities within the US Bonds segment are weighted based on a historical average issuance (’96-’11) within the US bond market. This helps avoid over concentration in US Treasuries whose unprecedented issuance in recent years has caused the bond market to deviate from historical norms.”

    Bogleheads are very opinionated and may not agree with their particular weightings, but at least it’s not arbitrary.

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