Motif Investing Review – Create Your Own Custom ETF (+$150 Bonus)

Ready for a start-up online brokerage site with a twist? It’s called Motif Investing. As a motif is a “dominant theme or central idea”, here you can invest in a group of up to 30 individual stocks that fit into a theme like “Housing Recovery” or “Lots of Likes” (companies that have the most Likes on Facebook). You can buy the entire basket of stocks with just one $9.95 commission, with no ongoing management fees. The minimum motif investment amount is $250.

My initial impression was that it felt a bit too trendy and gimmicky to recommend as a long-term investment. Indeed, I don’t really care how many Facebook Likes a company has, and I doubt I would buy stocks based on my love of pets or my political views. It’s just not my style.

But if you take a step back, since they let you customize the basket, anyone could essentially make their own ETF/mutual fund with zero expense ratio. You can’t track a broad index like the S&P 500 this way, but if you do have a basket of stocks that you buy regularly, this would be a cost-efficient way of doing it. You can also set the relative weighting of each of the stocks in the motif.

Personally, I might try creating a basket of dividends stocks that hopefully will provide a long-term stream of growing income. For example, take the SPDR S&P Dividend ETF (SDY) that holds 60 highest-yielding stocks of the S&P 1500 that have raised their dividends every year for the past 25 years. It’s a nice idea, but it leaves out some good companies and the 0.35% expense ratio eats up 10% of the original yield of the underlying companies. Why not hold them directly and keep the 0.35% as extra return for yourself? Right now, as it seems like you have to customize an existing motif, I think the “Dogs of the Dow” or “Bullet-Proof Balance Sheets” motifs are the closest.

In many ways, this is similar to the unlimited plan at Folio Investing, but Motif Investing has the potential to be a lot cheaper ($10 per motif trade with no minimum trade requirement vs. $29 every month for Folio) and is closer to a ETF in that they do real-time market trades. Motif also uses dollar-based trades, using fractional shares to keep everything organized. You can still do regular real-time trades of individual stocks for $4.95 per trade. No maintenance fees, no inactivity fees. Currently there is no automatic dividend reinvestment, you have to reinvest the cash yourself.

Right now, Motif Investing is offering up to a $150 cash bonus when you open a new brokerage account with $2,000+ and make 5 trades. If you make 1 trade, you’ll get $50. 3 trades will get $75.

Comments

  1. Are there any fees for withdrawing the money at the end of the 50 days? Do you have to spend $9.95 to start, or can you just leave the money there doing nothing for 50 days?

  2. Interesting idea. Thanks for the heads up. I have the same questions David has though.

  3. Gift Idea?

    Do you know whether it’s possible to buy this for someone else?

    Wouldn’t $250 in an interesting or fun assortment in stocks be a nice gift for some occasion celebrating the start of a new longterm life phase (new baby, grad, marraige, etc)?

    It’s an interesting gift, sensible, teaches about finances, investing in that persons future, can make fun with intriguing mix of stock choices, etc.

    Any thoughts about this?

  4. Basket/9.95 and fractional shares too – cool. Nice portfolios to attract tweens. This is the brokerage from future.

  5. How will these transactions be reported come tax time? If you set up a custom ETF with 10 stocks and buy once a month for a year… when it’s time to sell, is that 120 purchases to report, or 12? In a standard ETF, is it 12?

  6. David – Check Request by Regular Mail from Your Brokerage Account
    You can also request an ACH withdrawal online No Charge

    It doesn’t look like you have to make a trade to get the bonus. The account just has to be funded.

  7. Brad – The best I can find about taxes is “Apex Clearing Corporation, our clearing partner, will generate the forms necessary to file taxes. Motif Investing does not provide tax advice.”

    Does anyone have any idea about the protection of our money? I’d like to know my money will be there in 60 days.

  8. KP – from the FAQ:

    “Motif Investing is a Member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).”

  9. Deymond says:

    Brad, buying and later selling an ETF position would be one purchase/sale to report to the IRS. If these “motifs” are not recognized as a unique type of security by the SEC and the IRS, I’m sure the IRS would consider all 30 stocks in a “motif” to be individual holdings. If that’s true, I suspect that selling one motif and then buying another could lead to some complex tax issues if any of the individual stocks overlap.

    I don’t see anything on the website about rebalancing. I get the impression that the “motif” concept only applies to the purchase, and not to portfolio maintenance.

  10. Re: Withdrawal Fees:
    There are no fees for check or ACH withdrawal, and I see no account closure fees either on their fees page:

    https://www.motifinvesting.com/com-structure-dialog

    Re: Bonus Trade
    The terms are pretty clear that you don’t need to place a trade for the bonus, just some requirements based on funding.

    Re: Rebalancing
    If you look at the details of each motif under “How We Built This Motif” you’ll see a rebalancing frequency listed, usually either quarterly or annually. Right now all I can find is that rebalancing motifs is a feature that will be available for a “small fee”. It does say that you can also sell motifs for the same $9.95 commission.

    Re: Safety
    Motif Investing is registered by the SIPC and uses Apex Clearning (formerly Penson and PEAK6), so it’s as legitimate as a TradeKing or other discount broker. They are listed in the member database at SIPC.org.

  11. Motif Investing is also listed at FINRA.org with no regulatory actions against it.

  12. This stuff is much too complicated for me. I’m glad I have a finance guy I trust to handle my retirement account.

  13. Interesting concept which a twist… I might try it instead of putting the money in Betterment.com where they manage and handle the stock or eft picks. This gives control to you.

  14. BTW, the $50 bonus offer is not for IRA accounts, it has to be taxable account as per their terms.

  15. Any tax experts? I second Brads question: Buying one motif equal one or 30 buy sells?

  16. @Kevin:

    SEC doesn’t recognize motifs. Trading one motif is equivalent of trading all ingredients of that motif.

    Stocks overlapping in several motifs; keeping track of stock purchases and sales across motifs; identifying tax lots for determining short term/ long term capital gains; wash sales etc etc – taxes gonna be too complicated if motifs are traded frequently.

    But motifs would work awesome for buy-hold or monthly accumulation of stocks. I haven’t seen any other place that lets retail customer buy upto 30 stocks for just $9.95.

  17. randompacking says:

    Does Fidelity or Vanguard have a similar service?

    (sorry reposted to activate email notification of reply)

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