If you already have a good working knowledge of the world of personal finance, you probably know that you should be building a portfolio. M1 Finance gives you the ability to build a portfolio that meets your needs without paying the high fees associated with going to a traditional brokerage. Read on below to learn more about what this robo-advisor has to offer.
Founded in 2015, M1 Finance is a more personalized take on your traditional automated robo-advisor. Rather than being geared towards day traders, M1 Finance is committed to serving long-term investors who are looking to build a customized portfolio at a low-cost price point.
It’s important to note, however, that M1 Finance is likely best suited for more experienced investors. Since the company does not currently offer the opportunity to consult with a financial advisor, it may not be the right fit for new investors who don’t feel comfortable setting their own financial goals or managing their own portfolios.
How does M1 Finance work?
Getting started with this investment platform is fairly simple. First, you create an account by choosing an email address and password before being asked to verify your email.
Building your portfolio
Once your account has been created, you’ll move on to the fun part - building your portfolio. At M1 Finance, portfolio creation is centered around the idea of “pie investing,” where every investor’s portfolio is broken down into a pie chart. This feature makes it really easy to visualize the distribution of your assets and holdings.
To help you get started, M1 Finance allows you to make a selection from a series of expert pies. Expert pies are essentially professionally-curated portfolios that are based on different investment strategies and risk tolerance levels. You can choose an expert pie to serve as the base of your portfolio or you can leave it entirely as-is.
That said, if you have more specific ideas about how you would like to invest, M1 Finance also allows you to create custom pies. Creating a custom pie involves choosing from a selection of ETFs, mutual funds, and individual stock and fine-tuning their allocation in your portfolio.
Choosing your investment account
After you’ve customized your portfolio to your liking, it’s time to choose the type of investment account you want. The investing platform allows you to choose between a retirement account, an individual or joint investment account, or a trust account.
Next, per the USA Patriot Act, you’ll be asked to provide some personal information, such as your name, address, and social security number. Besides, you’ll also be asked some general questions about your financial standing and risk tolerance.
Funding your account
The last step in this process is funding your account. If you’re with a bigger bank, M1 Finance allows you to connect your account by simply entering your online banking login credentials. However, if you’re with a more regional bank, you also have the option of entering your bank account and routing numbers.
How much does M1 Finance cost?
For the most part, the M1 Finance investing platform is relatively low-cost. While trades are commission-free, there is a minimum balance requirement ($100 for taxable accounts and $500 for retirement accounts) that should be considered, as well as other fees.
In particular, while a portfolio made up entirely of stock will not incur a management fee, portfolios with mutual funds will be charged a fee of $20 upon sales. There is also an account termination fee and a maintenance fee on accounts that have been inactive for more than 90 days.
In addition to the regular platform, M1 Finance offers additional benefits through its M1 Plus platform for a $125 annual fee. Plus members get access to the option to open custodial accounts, the ability to set automated trading rules, and an additional afternoon trading window.
Also, they are given rewards, including a 1% APY on all M1 Spend checking accounts and 1% cash back on qualifying debit card purchases, plus a 1.5% reduction of the base rate on lines of credit opened through M1 Borrow.
M1 Finance Features
The M1 family of products
At its core, M1 Finance is more than an investing platform. In addition to M1 Invest, the online brokerage we just described above, M1 Finance also offers the following services:
M1 Borrow. With M1 Borrow, any user who has $10,000 or more in a taxable account with M1 Finance can borrow up to 35% of their account balance with this service in a portfolio line of credit. Standard platform users can do so at a 3.5% base rate and M1 Plus users can do so at a 2% base rate.
M1 Spend. M1 Spend is an FDIC-insured checking account and debit card that integrates with the M1 Finance mobile app. With your M1 Spend account, you can deposit your paycheck, pay bills, and handle expenses with an M1 Finance Visa debit card.
Another feature that sets M1 Finance apart is that it offers the ability to invest in fractional shares. As the name suggests, fractional trading involves having equity in a security that is less than one full share, which means that you have the freedom to invest in bigger companies without having to put up the money to buy a full share.
Rebalancing your portfolio every so often is important. This process involves bringing your investments back to their original Targets in your portfolio to maintain their risk level. Typically, this process can be costly and time-consuming. However, with M1 Finance’s dynamic rebalancing feature, it’s all done for you at predetermined intervals.
Who is M1 Finance best for?
M1 Finance is particularly geared towards self-directed investors. While similar online brokerages offer the opportunity to check in with a financial advisor, M1 Finance does not have the same capability. Given that absence, M1 finance will likely be a better fit for those who are comfortable researching financial instruments on their own.
Investors who want automation
If you don't want to have to physically move your money around, M1 Finance offers smart transfers, which allow you to set threshold-based rules to move money between your various M1 accounts and pies. Though, it is worth noting that smart transfers are an M1 Plus feature, so you’ll have to pay a little bit extra for the privilege.
Who shouldn’t use M1 Finance?
Unfortunately, M1 Finance does not offer much help with figuring out your investment goals or researching different investment vehicles. With that in mind, if you are new or to invest in, you may want to consider going with a different mobile app or even a traditional brokerage. One of those options should give you access to a financial advisor, who will be able to help you figure out your perfect investment strategy.
Those interested in alternative investments
While M1 Finance offers a robust selection of stocks, ETFs, and mutual funds, that's all you'll have access to with this mobile app. if you want to trade alternative assets like cryptocurrency or Forex, for example, you'll have to look into alternatives.
0.25% annual fee on every $1,000 for their digital plan and 0.40% on their premium plan
Robinhood is another robo-advisor that offers commission-free trades. Since this investing platform does not have minimum balance requirements and does not have management fees, it's often thought to be a good fit for new investors. That said, Robinhood also does not offer retirement accounts like IRAs or 401ks, which means it's probably better suited for short-term investors.
If you want professional advice on your portfolio, Betterment is the option for you. This investing platform offers advice calls with financial advisors for an extra fee. However, the fees you pay with Betterment may be steeper than some other options on the market. For example, they also charge an annual fee on every $1,000 that you keep in your account.
Easy to use. The M1 Finance sign-up process is incredibly easy. If you already have an idea of how you want to balance your portfolio, you can do the entire process in a matter of a few minutes. Additionally, M1 finance offers the ability to connect directly with your bank and fund your portfolio, which is a nice feature.
Charts. M1 Finance’s pie investing feature offers a visual way to see asset allocation, which makes it much easier to understand. In addition, having the ability to both choose from expert pies or create custom pies gives added flexibility.
No financial advisors. Unlike some of its competitors, M1 Finance does not offer the opportunity to connect with a financial adviser, which can make it a poor fit for new investors to need a little more guidance.
Lack of options. M1 Finance does not offer the widest range of investment vehicles. Investors who want to explore alternative assets may be better suited to a different app. In addition, investors only have access to one trading window, unless they sign up for M1 Plus, which means it's not the best fit for day traders either.
What types of accounts does M1 Finance offer?
M1 Finance offers investment accounts (joint and individual), retirement accounts (traditional, Roth, SEP IRA), and trust accounts.
When does M1 Finance make trades?
With the free platform, M1 Finance makes all of your trades in a single trading window in the morning, which means that it's not a good fit for day traders who are only looking for short-term holds. However, if you sign up for M1 plus, you can gain access to a second afternoon trading window as well.
What fees will I face if I use M1 Finance?
Luckily, M1 Finance is super transparent about its fee structure. Its fees are largely based on the type of account you choose and the type of trade you make. However, you can see the full list of fees on their platform costs page.
The bottom line
Overall, if you're an investor who wants to mix being able to customize your portfolio with the convenience of automation, M1 Finance might be a good fit for you. Its customizable pie and smart transfer features make this mobile app a great choice for those who are looking for a hands-off approach to personal finance and the ability to control their portfolio while on the go.
Yet, M1 Finance is not the right fit for everyone. While some new investors may find the site selection of expert pies a good place to start their investing journey, that's about all the site has to offer in terms of guidance. It’s not the best fit for those who are looking for more Guidance with setting their investing goals.
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