Remember when subscriptions were just for magazines? Today, there are subscriptions for almost everything—music, wine, razors, jewelry ‑‑ even underwear! Ownership is out. The subscription economy is in.
Subscriptions are beneficial in many ways. For one thing, they’re convenient. You’ll never run out of razors, and you won’t get nickel and dimed every time you download new music. It can also serve as a great budgeting tool. If you use a meal preparation service, for example, you’ll always know your monthly food budget.
Until now, if you wanted to build wealth, you traditionally had two choices: pay a financial advisor a percentage of your assets to do this for you, or do it yourself with an online broker and pay a transaction fee on everything you buy. Both options can be unfulfilling, especially for young investors just starting their financial journey. A financial advisor is expensive (especially when you compound their asset-based fees over time) and typically makes sense if you have more than $500K to invest and require complex financial planning. Think of an online broker as a vast supermarket of products, where it’s hard to figure out what to buy, and paying per transaction can be punitive for small account balances. A subscription model can take away some of the friction to regular investing, and can actually help improve your portfolio’s performance with fees that don’t grow and compound with your returns.
That’s why we launched Motif BLUE, where the subscription economy and investing meet. Motif BLUE is designed to give investors the benefits of a subscription and apply the same philosophy to investing. For the cost of a Spotify subscription, you can invest as much as you want, as frequently as you like, in whatever investment models you choose. No transaction fees and no hidden management fees. We’ll even help you find the right investing model and regularly rebalance it. And a single BLUE subscription carries across all of your accounts—taxable and retirement. We plan to model BLUE after my favorite subscription—Amazon Prime—and will continue to add new services to this already rich offering.
The subscription model for investing is still in its infancy. But I believe it will soon become the dominant model because it offers investors so much value and convenience. It was great to see another Silicon Valley startup, especially one with a customer base comprised mostly of millennials, also launch a new subscription. I believe that as more of the industry adopts subscription models, you the customer will largely benefit. However, all that glitters is not gold.
While this other subscription is self-described as "basically a credit card for stocks", in the industry it's simply called margin trading. Margin trading is basically borrowing money from your broker to buy a stock in the hope that the value of your stock will rise and you'll repay the loan out of profits. It all sounds great except when it doesn’t. You could just as easily pick a dud as you could the next Apple, at which point you’re on the hook for paying back the loan—but without the windfall you anticipated. Odds on you picking that winning stock are not good, especially in this market. Even skilled hedge fund managers with serious informational advantages are struggling with their worst performance in 5 years. I’m not sure how millennial investors skilled with a basic single-stock trading tool are going to fare any better.
It gets worse. This program appears to continue to charge the subscription fee even when you pay down the borrowed amount unlike the traditional model of charging margin fees on only what you use. This isn’t your flat fee subscription that offers you a deal. So why would anyone sign up?
With A-listers pushing a subscription that encourages high-risk margin trading, it leaves me scratching my head. Not just because I'm Hollywood illiterate but because I'm puzzled why anyone would openly promote margin trading to a cohort that’s saddled with the largest debt levels of any generation coupled with lower financial literacyand income levels. It's almost unconscionable.
Millennials are already wary of investing, let’s make sure we give them the choices they need.
 Bloomberg News, http://www.bloomberg.com/news/articles/2016-06-30/hedge-funds-set-for-worst-first-half-since-11-on-global-turmoil
 Gallup, http://www.gallup.com/businessjournal/188984/americans-big-debt-burden-growing-not-evenly-distributed.aspx
 PwC, Millennials & Financial Literacy Personal Finance
Originally posted on Linked IN by: Hardeep Walia
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