If Investopedia is stodgy and old-school, Motif Investing is new establishment, Silicon Valley change-the-worldism. It opened to great fanfare in 2010, with Hardeep Walia (formerly of Microsoft) as CEO. This is a bona-fide broker that allows you to place orders to purchase "Motifs" of stocks based on a hodgepodge of strategies and beliefs. There are a lot of great things going on with Motif, as the press is never weary of reminding us. It has also been widely panned. Much of the controversy is based on the Silicon Valley notion of "disrupting" in the way that smartphones, personal PCs and the transistor have disrupted our lives. There are, however, things to both admire and critique about Motif outside of this debate.
My favorite feature of Motif is its most iconic. You can bundle together a set of 30 stocks using some investment strategy and then invest $250 into it. Motif has the entire process in-house - screening, bundling and so forth. This essentially turns every investor into a mutual fund manager. You can buy Motifs developed by Motif (see what they did there?) or you can develop your own or you can purchase in-house some from the 100,000 amateur mutual fund managers in the community. You can weight stocks according to your preferred strategy, including in "custom" versions of professionally built Motifs.
You can build a Motif around any traditional or non-traditional investing strategy. Do you think corporations headed by women make more money? (They do.) You can invest in a Motif that only includes corporations with a female CEO called "No Glass Ceiling." Do you want to invest in environmentally friendly corporations? There is an entire section of the catalog called "green investing" with such Motifs as Fossil Free and Climate Change. Want to retire in 2035? There's a Motif for that.
Another feature that I, personally, love is the Creator Royalty program. Say you go through the effort of building a brand-new Motif based on a certain strategy (how about the number of women on the executive board?). You can post it online for others to peruse. If they like it enough to want to invest, they can purchase it for $1. You receive this as a royalty for your hard labor. I imagine that a fantastically successful Motif-creator could make a small sum at this, as you also make $1 every time you "rebalance" your Motif. People are allowed to trade out if your rebalance too often, however. As a buyer, you don't have to pay a royalty if you "customize" the Motif, allowing you to set up a Motif for essentially Motif's commission and nothing more. And if you can't find a Motif, build it.
All of which brings me to the two major negatives behind Motif Investing. The first is also its greatest strength: the community. The primary forum, called the dashboard, is being hijacked by interested parties constantly hawking their Motif. It's natural to brag about a nicely performing Motif (I've done it myself), but there is a serious danger that some of these people are manipulating Motif's strange method of reporting "returns". There are Motifs that are supposedly returning 100% in the past year, something Warren Buffett is struggling to do. I recently saw a Motif with a dividend yield of 16%. This is almost impossible unless a share price is collapsing versus a small dividend, i.e. you're trading penny stocks. There are a lot of posts by "newbies" to the tune of, "I'm a little confused by all the people hawking outrageous rates of return, can someone help me?" I fear that this aspect of the community will eventually kill the open source, 21st nature of the project.
The second flaw is the Motif tax strategy. You can't reinvest dividends (a fantastic long-term investment strategy), which means dividends will be taxed. Similarly, "rebalancing" a Motif will result in capital gains tax, since you are often selling and buying stock. Despite the language of disruption, you could end up with the same high fees that has led many investors away from mutual funds, but owe them to the IRS instead of an investment management company.
For these reasons, I think Motif is a long-term investment company, not a short term trading company. It is also a fantastic way to paper trade with baskets of stocks and experiment, and if you are incredibly good you might make a little money from royalties.
My favorite feature of Motif is its most iconic. You can bundle together a set of 30 stocks using some investment strategy and then invest $250 into it. Motif has the entire process in-house - screening, bundling and so forth. This essentially turns every investor into a mutual fund manager. You can buy Motifs developed by Motif (see what they did there?) or you can develop your own or you can purchase in-house some from the 100,000 amateur mutual fund managers in the community. You can weight stocks according to your preferred strategy, including in "custom" versions of professionally built Motifs.
You can build a Motif around any traditional or non-traditional investing strategy. Do you think corporations headed by women make more money? (They do.) You can invest in a Motif that only includes corporations with a female CEO called "No Glass Ceiling." Do you want to invest in environmentally friendly corporations? There is an entire section of the catalog called "green investing" with such Motifs as Fossil Free and Climate Change. Want to retire in 2035? There's a Motif for that.
Another feature that I, personally, love is the Creator Royalty program. Say you go through the effort of building a brand-new Motif based on a certain strategy (how about the number of women on the executive board?). You can post it online for others to peruse. If they like it enough to want to invest, they can purchase it for $1. You receive this as a royalty for your hard labor. I imagine that a fantastically successful Motif-creator could make a small sum at this, as you also make $1 every time you "rebalance" your Motif. People are allowed to trade out if your rebalance too often, however. As a buyer, you don't have to pay a royalty if you "customize" the Motif, allowing you to set up a Motif for essentially Motif's commission and nothing more. And if you can't find a Motif, build it.
All of which brings me to the two major negatives behind Motif Investing. The first is also its greatest strength: the community. The primary forum, called the dashboard, is being hijacked by interested parties constantly hawking their Motif. It's natural to brag about a nicely performing Motif (I've done it myself), but there is a serious danger that some of these people are manipulating Motif's strange method of reporting "returns". There are Motifs that are supposedly returning 100% in the past year, something Warren Buffett is struggling to do. I recently saw a Motif with a dividend yield of 16%. This is almost impossible unless a share price is collapsing versus a small dividend, i.e. you're trading penny stocks. There are a lot of posts by "newbies" to the tune of, "I'm a little confused by all the people hawking outrageous rates of return, can someone help me?" I fear that this aspect of the community will eventually kill the open source, 21st nature of the project.
The second flaw is the Motif tax strategy. You can't reinvest dividends (a fantastic long-term investment strategy), which means dividends will be taxed. Similarly, "rebalancing" a Motif will result in capital gains tax, since you are often selling and buying stock. Despite the language of disruption, you could end up with the same high fees that has led many investors away from mutual funds, but owe them to the IRS instead of an investment management company.
For these reasons, I think Motif is a long-term investment company, not a short term trading company. It is also a fantastic way to paper trade with baskets of stocks and experiment, and if you are incredibly good you might make a little money from royalties.
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