Dear Financial Independence Seeker, let me share how you can be your own professional money manager.
The rich get rich by buying appreciating assets like stocks, bonds, real estate, and fine art. The people who don’t get rich spend their money on depreciating assets like cars they can’t comfortably afford, and clothes that are never worn more than a few times a year. It takes discipline doing research on investable assets, which is probably one of the reasons why many people don’t even bother.
One of the biggest push backs I hear from readers who want to get rich, but don’t have enough disposable income to invest, is that investing costs too much and is too complicated.
All this changes with Motif Investing, an online brokerage that allows you to build a portfolio of up to 30 stocks and ETFs for only $9.95. For new users, you get $50 free for your first trade, $75 free for three trades, and $150 free for making five trades.
Traditional online brokerage firms like E*Trade, Fidelity, and Charles Schwab charge from $4.95 to buy or sell a position. That’s at least $238.50 in commissions one has to spend to build a 30 position portfolio! Motif Investing only charges $9.95 to build a motif, and $9.95 if you want to rebalance two or more positions. If you’d like to trade a single position, the cost is only $4.95.
Note: Motif was bought by Charles Schwab. But you can still be your own professional money manager with CS.
TWO THINGS HAPPEN WHEN FEES COST TOO MUCH
1) People don’t bother investing. People who want to invest in a diversified portfolio of stocks, but who don’t have a lot of money to invest, end up not investing at all. Savings is important, but buying assets that appreciate over time is the real kicker to generating wealth. The two main reasons why people do not bother to invest are cost and understanding. It’s much easier to spend money on a gourmet meal, a fancy watch, or a nice handbag rather than do research and invest in a stock, and then hope it goes up.
2) People invest in a risk inappropriate manner. People who don’t have a lot of money to invest may end up investing way more than they should on a particular stock, ETF, or fund because they want to save on commissions. This action can be penny wise and pound foolish, especially when things go bad. I’ve been guilty of this and lost thousands of dollars by overallocating into one stock. If only I had invested in a bunch of different names, I would have lost much less or made money. It just feels like a waste to spend $79 on commissions to buy 10 stocks.
Motif Investing eliminates the pain point of expensive trading commission fees. Further, unlike owning an actively managed portfolio, there are no active ongoing yearly management fees associated with owning a motif. The minimum to start investing is just $250.
Finally, Motif Investing offers up Horizon Motifs, which are like target date funds for retirement, but where you don’t have to pay an active management fee either! So easy to be a money manager.
Be Your Own Professional Money Manager
I decided to bank transfer a lower than desired, but still respectable $10,020 into my Motif Investing account in order to build a meaningful portfolio full of stocks and ETFs I think are attractive at this moment. I added the $20 for commission purposes, but I realized afterward that every new account with at least a $2,000 balance over 45 days gets at least $50 in free trade credit if they make at least one transaction. That’s me because as soon as the ACH transfer was confirmed, I got to work in building my motif that day.
Given I’m all about getting the best deal possible, I decided to do just that by actually building a real 30 stock/ETF portfolio divided into seven main categories: International/Defensive, Internet, Oil & Gas, Autos, Financial Institutions, Property, and Technology. Here’s how to be your own money manager.
I built my motif under the following assumptions:
1) Stocks that have corrected and are currently out of favor. Target beaten up stocks that have corrected by 20% or more from their highs. I’m biased towards growth stocks that have brand names.
2) Buy companies I use and understand (the Peter Lynch model). One of the easiest ways to get over your fear of investing, or finding stocks to buy, is to research and buy stocks that you know. Names in my portfolio include: Apple, Yelp, Netflix, Hawaiian Airlines, Chevron, Bed Bath & Beyond, and GoPro.
3) Stocks that may benefit in a low interest rate environment: real estate, home furnishing/remodeling, banks. Rates have fallen off a cliff recently with the 10-year yield now at ~1.63%. If stocks start falling out of favor, real estate and real estate related stocks may be relative outperformers.
4) Stocks that may benefit from a sustained low oil and gas price environment: autos and airlines. Nobody expected oil to collapse by 50% in one year. Airlines have already zoomed higher, but not Honda partially due to supply constraints. Low oil should actually hurt Tesla Motors at the margin, since this makes their product more expensive on a relative basis, but I like their upcoming product cycle. I’m a buyer of oil here, rather than a seller, hence the oil ETF USO.
5) Create a total portfolio performance that severely underperformed the S&P 500 over the past year. Once you’ve built your motif, the platform will show you how it would have done over the previous three month, one year, and five year periods. This particular motif would have returned -15% over the past one year, while the S&P 500 returned +16%, a 31% spread. Picking stocks with a downward bias generally leads to more losses over the shorter term as it’s impossible to pick bottoms. My hope is that these stocks will return to favor if the markets stabilize over the next year.
The Motif Investing interface is very intuitive. It was so easy to pick stocks, build the motif, and choose the weightings with a sliding scale.
Manage Your Own Money
With a limited amount of funds and a strong desire to invest now, I completely understand the frustration of paying expensive commissions that inhibit one from investing. Once you build your motif, or purchase one of the 150 professionally created motifs, you can simply dollar cost average into the existing motif(s). For example, let’s say I want to invest $2,000 of my disposable income next month into my motif, I can simply press a button and the $2,000 will be allocated among all the 30 stocks in the same current weighting.
Motif Investing tremendously lowers the cost for individual investors who want to build an investment portfolio on their own. That’s a very strong value proposition that allows folks who’ve been on the sidelines to start putting their savings to work.
By actually going through the process of funding my account, discovering the motif social community, building a $10,000 motif, and talking to the engineers, research group, and CEO multiple times in San Mateo, I’m confident that Motif Investing will help the majority or retail investors. Being you own money manager is great.
You can also use free wealth management nowadays.
Track Your Net Worth For Free
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, you can run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely check to see how your finances are shaping up as it’s free. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
About the Author: Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $210,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
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