What Is Motif Investing, and Is It Right for You?

Motif Investing Definition, Advantages and Disadvantages, and How to Invest

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••• Is Motif Investing right for you?. Getty Images

As passive-investing funds, such as index funds and ETFs, surge in popularity,  has emerged as another low-cost and simple means of buying a portfolio wrapped in one package. Also, similar to robo-advisors, Motif Investing provides portfolios with rebalancing features.

But like any investment product, service, or security, Motif Investing will benefit some investors while it may not be the best fit for other investors. Learn the advantages and disadvantages of motifs before you invest.

Motif Investing Definition

Motif Investing is a company that offers their own alternative to packaged investment portfolios like mutual funds, ETFs or the combined service of robo-advisors. Therefore Motif Investing is part investment product and part service.

The definition of motif is a decorative design or pattern, or a theme in an artistic display. Similarly, Motif Investing offers investors a selection of theme-based investment portfolios that are designed around a particular investing theme or trend. For example, some of the motifs available include Social Networking, Biotech Breakthroughs, and Online Gaming World.

Advantages and Disadvantages of Investing in Motifs

There are several advantages and disadvantages to motif investing that investors should know prior to investing. After reviewing these pros and cons, you can compare them with your current investments and accounts for reference.

Here are the primary advantages of Motif Investing:

  • Expenses: The ability to buy a portfolio of stocks or ETFs for less than $10 gives Motif Investing an advantage over discount brokers and robo-advisors. There are no additional or hidden fees.
  • Simplicity: If you choose a pre-packaged motif portfolio, there's no research or analysis involved—just buy a theme that fits your investment needs or something that compliments an existing portfolio. Investors also save time on placing the trades for dozens of securities by placing one simple trade instead.
  • Rebalancing: When you rebalance a portfolio, you're returning to your original target allocations, which essentially sells shares of the "winners" and buys shares of the "losers." This is a core philosophy of modern portfolio theory and can potentially increase long-term returns while maintaining diversification.

These are the main disadvantages of Motif Investing:

  • Performance Chasing: The motifs are centered more on theme and packaging than prudent diversification, which can lead investors to choose from the top-performing motifs or the most popular ones. This can lead to performance-chasing or other potentially damaging investment behavior.
  • No Dividend Reinvestment: Motifs don't allow for dividend reinvestment. So dividends just go to cash until you buy again.
  • No Limit or Stop-Loss Orders: Motif only allows market orders, which can be a negative for some advanced traders that like to use these tools.

    Some of these advantages and disadvantages will have more impact on your personal objectives and preferences than others. Know your priorities and reasons for investing before buying motifs.

    How to Invest in Motifs

    Motif Investing allows investors to select a particular motif, or theme-based portfolio, which typically includes about 20 to 30 stocks or ETFs, for a fee of $9.95 per trade. Investors can also customize their motif mix for an asset allocation and blend of investments that works best for their needs or interests.

    The rebalancing feature on the pre-packaged motif themes also helps optimize diversification and long-term performance potential, based upon modern portfolio theory.

    Bottom Line on Investing in Motifs

    Motif investing can be a compliment to an existing portfolio of mutual funds, ETFs or other securities; however, they may not be wise standalone investments because many of the portfolio themes are narrowly concentrated into one sector or market niche.

    For example, if you put all of your retirement savings into the "Social Networking" motif, you may see some big short-term gains but you could also see large swings in price and significant declines in share price. For proper diversification, it is wise to spread investment assets across more than one asset type (i.e. stocks, bonds, cash) and hold a variety of investment categories (i.e. U.S. stocks, international stocks, large-cap stocks, mid-cap stocks, small-cap stocks, bonds, and so on).

    Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.