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Motif Investing Review: The ETF And Index Fund Killer

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After spending 13 years in equities on Wall

Street, Ive been able to personally speak to
some of the most successful institutional
investors around on how to invest and manage
money. The one consistent piece of advice I
always hear is to invest in long-term trends and
forget about the day-to-day minutiae. For
example, shorting/underweighting Japanese
equities since the late 1980s and going
overweight commodities in the 1990s have been
great winning decisions.
As a result of my experience working with
successful fund managers, I weaned myself off of
trying to constantly trade around the market after the NASDAQ burst and have been focused on longterm, idea-driven investing ever since. Ill always have a Unicorn Fund to punt around for the next
multi-bagger stock, but the fund is always less than 5% of my net worth or 10% of my entire equity
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Motif Investing Review: The ETF And Index Fund Killer With $150 Sign Up Bonus | Financial Samurai

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exposure.
Motif Investing is a fascinating company based right here in the San Francisco Bay Area. Ive been
following them for the past couple of years after they raised a $25 million round of funding led by
Goldman Sachs in 2013, won the Finovate Fall 2013 and Finovate Spring 2014 Best In Show, and
raised another $35 million round in 2014 led by JP Morgan. Motif Investing makes most of its money
off transactions (trades) when you buy or sell one of their motifs based on an investment idea you
have. They might also expand into the money management business as well.
A motif is essentially a basket of 30 stocks you can invest in, which are aimed to profit from a specific
idea or underlying theme. Lets say you think new housing construction is going to quicken in the US
next year. You could buy a housing motif which might contains Lennar, KBH, Home Depot, Bed, Bath,
and Beyond, Zillow, and more in various weightings. Given my focus on buying winning long-term
ideas and ignoring the short-term volatility, I really like Motifs value proposition for retail investors.

MOTIF INVESTING REVIEW

Lower Cost
Lets say youve got $50,000 to invest. You could buy a bunch of low cost ETFs for $7.95/trade via
E*TRADE to create your ideal portfolio. Or you could buy an expensive target date retirement fund
that might cost over 1% in fees if youre not buying from a low-cost shop like Vanguard. Or you could
buy individual stocks at $7.95/trade to create your own portfolio.
Instead, what you could do is buy a motif of up to 30 stocks for a one-time fee of $9.95, instead of
spending $238.50 in commissions to buy 30 individual stocks. Obviously if you have a larger portfolio,
the commissions matter less. But most retail investors have less than $100,000 in their after-tax
investment portfolios and should be cognizant of their trading fees.
Now lets say you want to buy or sell an individual stock within a motif that youve purchased. You can
do that by paying $4.95 in commission for the trade. So again, the transaction cost is lower, and Im
sure the transaction cost will continuously adjust to the market rate, as low cost is one of Motifs value
propositions.
Further customization within a motif is also possible and affordable if you want to buy or sell multiple
stocks. Thats no problem too. Motif Investing gives you 2 cost-efficient options. You can add, delete
or change the weightings as you like, then buy the entire customized motif for a commission of just
$9.95, regardless of how many stocks youve changed. Alternatively, you can buy or sell each
individual stock in a motif you own for just $4.95 in commission per stock.

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As your investment performance changes over time, rebalancing can occur to ensure the motif stays
true to a specific idea or trend. The creator of the motif will adjust stocks, segments, and weights
accordingly. If you decide you want to participate in those rebalance changes, it costs $9.95 to follow
suit with one click of a button. In an ideal world, you hope to never pay any fees after purchase ever
again. But lets say your Apple stock is up 100% and has gone from 25% to 50% of your entire Silicon
Valley motif, and your Netflix stock is down 40% and only has a 6% weighting from a 10% weighting;
you might want to rebalance for your own good as one never knows.

Asset Allocation Ease

Motif Investing also offers Strategic Asset Allocation Models through their motifs for those of you who
dont want to select stocks and pick ideas. There are no monthly fees once you buy the motif. The idea
is just like buying a target date fund based on the age you wish to retire.
Below are three examples of asset allocation motifs for those who plan to retire in 1-2 years, 5-10
years, and 10-20 years.

Endless Variety Of Ideas

Whats probably the most exciting about Motif Investing is the endless amount of ideas you can invest
in. There are so many ideas to choose from, which can be sorted by popularity, performance, industry,
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brands you know, megatrends, current events, cultural, fixed income, target date, dividends, and
asset allocation. Its incredible. The risk is that the investor gets overwhelmed and wants to buy
everything.
Here is a snapshot.

COMPARISON CHART BETWEEN MOTIFs, ETFs,

MUTUAL FUNDS, STOCKS

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Motif Investing Comparison To ETFs, Stocks, Mutual Funds, Review

* There are currently over 85,000 users of Motif Investing.

YOU CAN ALSO BUILD YOUR OWN MOTIF

Instead of showing you in writing how to build your own motif, heres a video showing how its done.
Building your own motif can be a fun and a profitable way to take advantage of new trends in the
markets. For example, lets say everybody is up in a frenzy regarding the Ebola virus. You or someone
in the Motif Investing community can and will probably create an Ebola motif.
Or lets say big butts are all the rage now thanks to the over exposure of Kim Kardashian according to
one recent media report. You can find health, fitness, beauty, and medical companies that might be a
profitable play on Americas shallow obsession with our bodies. The ideas are endless.
I like the idea of creating a motif of multiple stocks based on an idea because it helps remove
endogenous risk to a company. You never know if a company might be a fraud, have an accounting
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scandal, get tripped up by regulation or a lawsuit, and so forth. By buying a basket of stocks to
associate around an idea, you de-risk.

Theres a pretty interesting social aspect around Motif Investing as well. They have a community of
tens of thousands of investors who are following each others ideas and generating new motifs. Theres
a feature called theCreator Royalty Program that allows an individual to build and offer a motif
strategy to the community. If another investor buys the motif or accepts a rebalance, the creator gets
a royalty of $1. This happens each time a new investor comes in or existing owners pay to rebalance,
and is incredibly motivating for users to offer the best moneymaking ideas.
Users have currently built over 70,000 motifs already, more than all the mutual funds and ETFs
combined plus the 150+ built motifs by the Motif Investing investment professionals!
Heres my 30 stock, ETF motif that consists of familiar stocks that have corrected by more than 20%
from their highs and are beneficiaries in a low interest rate and low oil environment. I invested
$10,000 to take advantage of the market volatility on 1/30/2015.

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$10,000 Financial Samurai Motif built on 1/30/2015

MOTIF INVESTING FOR PRIVATE INVESTORS

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So far Ive highlighted Motifs value proposition to retail investors. Now Id like to change directions
and look at Motif Investing from a private equity investors point of view.
Motif Investing makes more money when more users buy and sell motifs, trade out of single stock
positions, and constantly rebalance their motifs. The risk to the retail investor of a motif is that a motif
might overly rebalance to get people to trade. And if a motif constantly trades in and out of positions,
then retail investors will be turned off as commissions eat too much into performance.
But as a private equity investor in the company, you want as many users as possible to trade. But this
is short-sighted thinking once again, given we all know that active management and trading in and out
of positions is a losing proposition for most people long-term. Instead, a private equity investor is
banking on a structural shift of the billions of dollars that have found their way into ETFs and Index
Funds, and now motifs.
The biggest players in the $1.8 trillion ETFs industry are BlackRock, Vanguard, and State Street.
BlackRock is the largest with roughly $1 trillion in iShares. If Motif Investing can capture just 1% of
the $1.8 trillion ETF market, thats $18 billion.
There is no doubt in my mind that there is a great market out there for passive + active (or Passive+)
style of investing. We all want to be in control of our money. A great hybrid way to invest is to simply
assemble the lowest cost investment assets into an ideal investment portfolio based on your risk
tolerance. In other words, I might buy some ETFs, some index funds, and some motifs, instead of
paying a 1%+ mutual fund fee. The Internet and technology have made investing much easier.
The other area of focus for Motif should be to create a stickier, more recurring income stream. The
logical next step is to therefore become a registered investment advisor and to manage clients motifs
as motif experts. Motif can also license their motifs to other brokers or RIAs as well.
If I was asked to invest in Motif Investing today as a private equity investor, I would, no doubt.

CONCLUSION
Motif Investing will never fully supplant the enormous ETF and index fund industry. But I do believe
Motif Investing can create its own asset class that will become popular with the DIY investing crowd.
The combination of low cost, flexibility, social, and idea generation is attractive. The Motif Investing
platform is incredibly simple to use as well. Theres no need to pay expensive recurring active
management fees when you can build your own 30 stock portfolio for only $9.95.
As more and more savvy and experienced investors go on the Motif platform, one can theoretically just
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piggy back off of the most successful investors who you can follow in real-time as well. Theres
definitely a place for investors to carve out a slice of their investment allocation pie to Motif. If youd
like to sign up for Motif Investing and get up to $150 for free you can sign up here.
Regards,
Sam

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Filed Under: Investments

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way
to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in
2012 to utilize everything he learned in business school to focus on online
entrepreneurship. Sam focuses on helping readers build more income in real estate,
investing, entrepreneurship, and alternative investments in order to achieve financial
independence sooner, rather than later.
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