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Introducing Commission-Free Horizon Motifs

16 May 2014 in Trading Ideas

Whether you’re looking for an investment solution to help save for a house or looking to retire, our new Horizon motifs are commission-free asset allocation models tailored for your time horizon and risk tolerance. See details.

Sooner or later, most investors come up against the term “asset allocation” – either from their own education or from their trusted financial advisor.

However, many of us were already practicing this ubiquitous idea without even realizing it. In its simplest form, the notion is what you might expect: portioning your assets to achieve goals in the most efficient way with a risk level you can handle.

When thinking about your own finances, this can mean basic decisions like how much money to put in a savings vs. a checking account, or how to save for a down payment for a house.

As with those real-life choices, allocating your assets correctly as an investor can be the difference between reaching your goals and pushing them out several more years. In fact, research has shown that more than 93% of the variation within a portfolio’s returns can be attributed to asset allocation choices.1

In other words, how you allocate your assets is the most important investing decision there is.

Our new Horizon motifs seek to improve on traditional asset allocation models by leveraging recent advances in computational techniques to provide investors with a low-cost, diversified solution for the core of your portfolio.

With these enhancements, we believe we’re able to create a set of asset-allocation motifs that can be tailored for both an investor’s investment horizon and risk tolerance. All together, the nine new motifs range from short-term (one-year) to long-term on the horizon dimension and from conservative through aggressive on the risk tolerance dimension.

This is how we think asset allocation in today’s financial markets should work – sure, it can be a valuable framework for a simple and intuitive retirement plan, but it can also help achieve financial goals that are more pressing.

Of course, a new investing concept is one thing, putting it into practice in a simple yet cost-efficient way for our customers is another. Since the Horizon motifs include carefully chosen passive, low-cost, index-based ETFs to represent each asset class (such as US bonds, US equities, commodities, international equities, etc.) we are able to develop motifs offered with no trading commissions. These tools can help self-directed investors dramatically reduce costs.

That’s in sharp contrast to annual advisory fees that can range from 0.15%-0.35% of total assets. While such fees might sound small, they are a significant drag on returns over the lifetime of an investor’s portfolio. Horizon motifs don’t come with similar fees because we let investors choose their own horizon and risk tolerance.

The new Horizon motifs also give you the same key features that our customers have been enjoying with the rest of our catalog for some time – the ability to customize and rebalance.

Unlike other asset-allocation products, which require that you choose from one of several predefined, unchangeable models, and can often include overlapped asset classes, the Horizon motifs are fully customizable. Customers who customize their Horizon motifs can do so by paying the same $9.95 commission they’ve seen with their other prebuilt and customized motifs.

The primary goal of rebalancing isn’t to maximize returns, but to minimize risk relative to the target asset allocation. While the standard industry practice is to advocate rebalances on a fixed monthly, quarterly or annual schedule, this approach may not always be the best.2 For example, research has shown that continuously rebalancing a 60% equity/40% bond portfolio on a monthly schedule can detract as much as 2.7% in annual returns due to portfolio turnover – without significant risk-return benefits.3

To minimize the rebalancing inefficiencies, the Horizon motifs employ a time- and threshold-based strategy that monitors for deviation from target weights. If the deviation hits the threshold at the end of the month, the portfolio is rebalanced back to the target allocation. As always, motif owners can choose whether to follow the latest rebalance. Plus, Horizon motif rebalances are commission-free if you follow the motif’s rebalance (for rebalances of customized Horizon motifs it’s $9.95 total commission).

We believe that the new Horizon motifs can be a foundation of your portfolio. We believe we’ve taken the traditional asset-allocation model and pushed it into the modern era with updated methodology and the use of low-cost ETFs.

Let us know what you think!

1G.P. Brinson, L.R. Hood, and G.L. Beebower, 1986. “Determinants of Portfolio Performance”.
Financial Analysts Journal.

2Pliska, Stanley R., and Kiyoshi Suzuki, 2004. “Optimal Tracking for Asset Allocation with Fixed and
Proportional Transaction Costs”. Quantitative Finance

3The Vanguard Group, 2003. “Sources of Portfolio Performance: The Enduring Importance of Asset

The Exchange Traded Funds prospectus contains its investment objectives, risks, charges, expenses and other important information you should read and consider carefully prior to making an investment decision. Please review the current prospectus, available from the Prospectus link or by contacting Motif either by phone at 855-586-6843, email at service@motifinvesting.com, or in writing at Motif Investing, Inc., P.O. Box 3548, Rancho Cordova, CA 95741.

ETFs have unique features that you should be aware of, which can include distribution of any gains, risks related to securities within the portfolio, and tax consequences. ETF’s also charge a management fee that is unique to their ETF and is defined in the prospectus and is applied to the ETF by its managers. Please review the prospectus or other research tools provided on this site for more recent performance information.

Information provided is for illustrative purposes only and not intended to represent recommendations for investment of any particular investment or strategy. Horizon motifs can provide investors with a starting point to consider in allocating assets within their larger portfolio. There are many considerations when structuring your portfolio, such as cash needs, family-planning needs, tax and estate planning strategies. Each investor needs to review an investment strategy for their own particular situation to determine their suitability for an investment before making any decision. You are responsible for all investment decisions you make.

Horizon Motif Commission Details
$0.00 commission for trades (buys, sells, following rebalances) for the benchmark versions of the nine Motif-created Core Asset Allocation Horizon motifs. Commissions for any Horizon motifs that are customized in any way – adjust weighting, add or remove securities, choose not to follow rebalance event, will include a $9.95 total commission per motif transaction or pay $4.95 per stock for individual stock/ETF transactions. Regular commissions apply for other Motif-created benchmark motifs and customer-created customized motifs ($9.95 total commission per motif transaction or $4.95 per stock for individual stock/ETF transactions). Other fees may apply. Motif reserves the right to review and amend the commission pricing structure at any time in the future and will notify you in writing of any intended changes. While ETFs will apply a management fee and other fees to ETF, as defined in the ETF prospectus, Motif does not apply an additional management fee for including any ETF into a motif portfolio. For details on fees and commissions for non-Horizon motifs, please click here.