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Using Motif's 'Auto-Reinvest' To Create A Compounding Machine

|Includes: The Blackstone Group L.P. (BX), TQQQ, UPRO, XOM
Summary

Monthly Dollar Cost Averaging Boosts Returns.

Compound Interest is the 8th Wonder of the World.

Imagine adding weekly or even daily dollar cost averaging to one's portfolio.

When I was doing research on Motif, I must confess that I was initially crestfallen when I discovered that they didn't offer DRIP (Dividend Reinvestment Plan) like say TD Ameritrade.  For me, dividend reinvestment is a potent part of my investing strategy, so this negated a serious component in my investing tactics.  Yet, it begs the question, what is 'Auto-Reinvest?'  Essentially, one can choose one single stock or ETF that all of the dividends from the account go to purchasing commission-free, as opposed to having the said dividend repurchasing shares of the stock/ETF that gave one the dividend. 

For example, let's say that you owned Blackstone (BX) and Exxon Mobil (XOM) in your account and chose TQQQ for your 'auto-reinvest' choice.  Now, let's say that your $50 dividend from Blackstone and your $20 dividend from Exxon Mobil were deposited into your account.  In TD Ameritrade or another similar DRIP program, the $50 would go to repurchasing Blackstone, while the $20 would go to repurchasing Exxon Mobil, but in this instance, all $70 would go to purchasing TQQQ at zero-cost. 

Now, if one looks at my previously published article 'Leveraged ETFs For The Long Term' one can note my contrarian position in owning leveraged ETFs for the long-term, which is considered foolish, reckless and even insane by many investors, especially index cultists.  Am I not aligned with my Greek ancestor, Cassandra, the prophetess condemned to not be believed?  Yet, let us leave the Greeks aside and continue on.  One can look at that article and do more in depth research on the matter, but consider this FACT: one who put $10,000 into TQQQ on March 2010 and just sat on his/her hands through market gyrations has received a return of 40.12%, turning that $10,000 into $152,830 over the time period whereas the vanilla 500 index fund returned a respectable 12.10% transforming your $10,000 into $25,167. 

Now, let's turn to our trusty compound interest calculator.  Imagine if one could add a dollar a day or say ten dollars 5x ($50 a month) 10x ($100 a month) or 20x ($200 a month) throughout the month to the initial investment in TQQQ for free.  Imagine how that would elevate the returns.  In my compounding calculator, I entered $10,000 for 20 years at 20%, which gives one $383,376.00, yet if one contributes $365 annually, it boosts the amount to $465,145.34.  Now, the results here are flawed, as the amount is added in one lump sum either at the end of the year or the beginning.  I don't know of a calculator that could calculate daily contributions.  Perhaps a reader here on Seeking Alpha could locate this.  The best comparison that I could think of would be to pay one's mortgage payment as planned, but instead of making an extra $300 payment on the 30th of month, paying $10 a day for 30 days for the same $300 total.  My guess is that this strategy would yield better results than the lump sum method at the end of the month. 

So, with all of this in mind, I created two of my Motif Funds with the sole intention of using them as feeder vehicles into TQQQ.  The first fund is The Monthly Dividend Fund, sporting a dividend yield of 7.1% and comprised of 22 monthly dividend stocks/etfs, while the second is The Super High Yield Fund with a yield of 14.1% and owning 20 unique holdings.  I didn't create these for their spectacular returns versus the S & P 500, but simply as a way to dollar cost average multiple times throughout the month into TQQQ.  Yet having said this, both have outperformed The Vanguard 500 Index since their creation.  As I often say to a friend 'the blue line doesn't lie.'  Though, over the long term, I would be fine with these matching the index or even a slight under-performance. 

Now, due to the fact that there are 42 singular holdings in the two funds, the ex-dividend dates are bound to be varied, so imagine if I receive dividends on 18 days throughout the month; this would mean that I would be making 18 separate purchases of TQQQ.  Now, imagine, if we go into a prolonged bear market and I have the fortitude to be a stubborn mule with this approach, picking up TQQQ as others declaim that it is like trying to catch a falling knife.  But, like Buffett and many others, I have a marked long-term approach.  I would rather have greater draw-downs in the short-term for more pronounced long-term returns. Forbes Magazine just recently did a profile of the Billionaire investor Herb Wertheim where the article ended with the sage line: 'And Wertheim isn't in any rush.  Playing the long game is what he does best.'  This strategy that I have created is not for those who are looking to get rich quick, but for those who are looking to transform their account from a mere investing/trading account into a veritable compounding machine.  

Disclosure: I am/we are long TQQQ.