In this series we have explored various brokerage firms to find the best deals. The idea is to have the lowest possible fees (if any) allowing you to keep as much of your money as possible. We talked about Robinhood as a great free way to buy securities, and Stash as a way to buy ETF's for beginners (though it has fee's).
Here is the problem I've found, even if you use Robinhood to buy into an ETF for free, that ETF still has an expense ratio. This expense ratio costs you money (growth) over time. However, it has the benefit of relieving stress and instant diversification. What if you could have the diversification (or close to it) of an ETF, with a smaller, one time fee?
Enter Motif. Their platform allows you to build a collection of securities (ETF's, REIT's, or individual stocks) up to 30 different selections per Motif. Once you have picked your securities and their desired weight in your Motif, you can build it and now you have your own ETF with no ongoing expense ratio (unless you built your motif with ETF's or other securities that simply come with their own built in expense ratio, but for this example, you are building a Motif of only individual stocks).
Lets do some math!
You have 2 accounts with $10,000 in each. One account you buy into your Motif costs you $9.99. The other account you buy into an ETF with an expense ratio of 0.15%.
Motif: Cost $9.99, E/R for that purchase, 0.000999%
ETF: Cost $15.00 , E/R for that purchase, 0.15% annually
So this ETF will cost you EVERY year you own it. Which means you are paying every year for the privilege of owning those shares. Whereas with Motif you are paying ONCE for the service they provide (building the platform, design, offering a back-end that makes this possible, etc. One year of owning the Motif and you have saved $5.00. Then, you save the entire cost of a E/R each year after that.
Does that make Motif free investing? Pretty close.
So I am all about free investing, I think its a way to democratize access to markets and allow people with smaller amounts of money to begin securing their future. The last two platforms I talked about were Loyal3 and Robinhood. Both of those are great options, however they do have draw backs. Loyal3 only offers stocks, and a limited number of them. And Robinhood is only functional on mobile devices (they said a website interface is underway).
Purchasing individual stocks can be overwhelming for new investors. Loyal3 has sought to simplify this by integrating the companies logos and a quick description of what each company does. However you will still face the dilemma of diversifying their portfolio with little / no prior knowledge. With some background knowledge you can use Robinhood to purchase a huge assortment of stocks / funds. But once again, this requires a bit of knowledge to know what you are looking at, or know where to go to find that information.
Enter Stash Investing. Stash is free for the first 3 months, then it is $1 a month until your account reaches $5,000 then it switches to 0.25% a year (or $12.50 per year for $5,000). Now, I know that's not free. However, it comes with a simple interface, no commissions, and inviting descriptions. One example is the PHO fund (which you can buy on Robinhood) is named "Water the World" on Stash.
Overall there are better investing options then Stash, however it does have it's place. If I can't convince a friend to use Loyal3 or Robinhood then I would definitely steer them to Stash where hopefully the inviting user interface and fun descriptions will convince them to start saving. Also, they offer funds instead of individual stocks. So if someone buys 2 or 3 different funds, they will be instantly diversified in the market.
When you first join Robinhood you will have a "Cash account". Cash accounts have certain limitations on them, such as slow cash transfers in and out of the application. You are automatically put in a cue of users waiting to be upgraded to "Robinhood Instant". You can push yourself up in line by inviting friends to use the application. I didn't refer any friends and it took about 3 weeks for me to reach to top of the cue and be upgraded.
Now that I have Robinhood instant my trading experience has been 100% better. When you transfer money into Robinhood (under a certain amount) it is available instantly. Being able to move money and purchase investments quickly is a huge advantage, making it well worth the wait. So if you are new to investing and don't have a lot of money to invest right now, it might be worth opening an account and purchasing a single stock. That way you can move up the line to Robinhood Instant while you wait to build some cash. Just make sure it's a valuable security, it would suck to lose money on something thats just moving you up in line.
As time progresses and new technologies develop you have to grow with them. This is especially true with investing. In the past there were only a few ways to buy stock, either directly from a company or through a brokerage firm who would charge fees. Being a young guy with limited resources I can’t justify paying a middleman. In fact, I don’t want to be middle-manned ever. If I wish to invest in a company, that should be between me and them. So why does someone else get a slice of the pie? They are neither the investor nor the company actually creating a product, they are literally a middleman and we currently have the technology to work without them.
This is why I have chosen to use Loyal3 and Robinhood for the majority of my investments. They offer commission free trades. There are of course other penalties such as Loyal3’s batch trades, and Robinhood holding your cash balance for a few days before making it available for release. However, over the course of a lifetime neither of these are huge factors for the long term dividend growth investor.
I actually opened a Merrill Lynch Edge account last week and attempted to buy shares of GLDI. The security was locked to me, so I gave them a call. They informed me that their “investment analysts” had deemed the security “too risky to expose their investors to”*, who are they to tell me what’s too risky? That doesn’t sound like a free and competitive market to me, sounds like a corporation is funneling people into securities they want them to buy instead. Needless to say I used Robinhood and bought 2 shares of it the next day with no problem.
* To Merrill’s credit their phone support service is spot on. The guy I had was a super polite American who was well spoken over the phone.