M1 Finance Review - A Robo Advisor With A Human Touch
M1 Finance gives you the benefits of a robo-advisor with the control of a traditional brokerage. If you’re someone who wants a hands-off approach but wants to have a little control when you need it, M1 Finance might be for you.
- Seasoned investors
- Low starting balance
But what if you wanted just a little more control? What if you wanted to make sure you had individual investment balances in stocks like Apple, Google, and Amazon?
With M1 Finance, you can.
It’s arguably the best of both worlds.
But with this hybrid approach comes some limitations.
In this article, I’ll review M1 Finance so you can determine if it’s a broker you want to switch to now or not.
What is M1 Finance?
M1 Finance was founded in 2015 and is what you’d call a hybrid between a robo-advisor and a traditional brokerage. M1 takes a lot of the complexities out of investing by making things visual and renaming functions to cater to the investor who wants a hands-off approach.
Using a methodology they call “Pies” and “slices”, you can pick and choose a variety of investments and the percentage of your portfolio you want it to make up. M1 has a stunning app, a lot of features, and offers a new way of investing. Let’s dive into some of the best features they have.
M1 Finance features and how it all works
The first step to getting started with M1 Finance is opening an account. Here’s a short video on opening an account and getting started with M1:
And now, some of the key features:
M1 Finance has created what they refer to as the Pie, as a way to build and manage your portfolio. In essence, it’s a cleaner way to look at asset allocation. Here’s how it works:
- Choose individual investments and add them to your Pie. Each stock you pick will represent a “slice” of the Pie. So if you own Apple and Google, you’d have two slices in your Pie.
- Define the target weight of each slice. This is how much of your portfolio you want to be dedicated to that particular slice. For instance, if you want 10 percent of your Pie (portfolio) to be in Google stock, you’d set that slice to 10 percent in your pie. M1 Finance allows for the purchase of partial shares, so this percentage will always be around 10 percent until you change it.
- Fund your Pie. As you deposit money into your account, the money is spread across the various slices of your Pie. So, for simplicity, if you had a pie with 10 percent Google, 20 percent Apple, and 70 percent Amazon, your deposits would follow that split. A $100 deposit would give send $10, $20, and $70 to each investment accordingly (minus any fees).
- Watch your portfolio perform. Over time, the ratios will get out of whack because stocks grow or decline in value. You can visually see this as you look at your overall Pie.
- See it rebalance. As you deposit new funds, the slices will go back to their designated targets so you always have a balanced portfolio the way you like it.
- Add, remove, and edit slices. If you don’t like a slice, remove it (this is like selling the stock). If you want a new slice, add it (buy stock). Or you can edit the slice to a different percentage, and M1 will adjust it accordingly.
The Pie also features what M1 Finance calls Expert Pies. According to their website, “M1 Expert Pies use proven methodologies used by some of the world’s most successful brokerages and advisors.”
Finally, you can create a completely Custom Pie to look however you want. M1 says that you can pick “individual stocks, ETFs and even combine with Expert Pies to build your ideal long-term portfolio.”
M1 Finance has a broad selection of stocks and ETFs. You can choose any investment that is traded on any of the major exchanges—which leaves you with a nearly endless supply of options.
One of the nicest things about investing with M1 Finance is that they use fractional shares. Those of you who remember the old Sharebuilder will know what I mean, but those of you who don’t—let me explain. Fractional shares allow you to invest every single dollar, down to the penny, in a stock.
For example, if a share of XYZ stock costs $200 but you only have $100 to invest, M1 Finance would purchase 0.5 shares for you. Any other broker would require you to have the full $200 to buy a whole share.
This means that you won’t have any cash sitting idly by as you wait to get enough to buy a group of full shares.
- Individual—an individual taxable account for general investing purposes
- Joint—a joint account that you can establish with a spouse, domestic partner, or relative
- Retirement—M1 offers Traditional, Roth, and SEP IRAs so you’re completely covered for retirement planning
- Trust—an account set up on behalf of another individual or group
M1 Finance is big on automating the things that most investors hate to do. This is probably one of the biggest selling points of using M1 Finance over a traditional broker – as you can take a “set it and forget it” approach with your investments. Here are some of the benefits:
- Recurring investments. You can establish your own schedule for investing and deposit money whenever you want – automatically. For example, you can deposit $200 every week, or $100 every time you get paid. This is a great feature for both people who get a regular paycheck and people who have irregular income – as you can set up deposits on a monthly or quarterly basis if you want.
- Automatic rebalancing. Rebalancing my portfolio is one of the biggest reasons I switched to a robo-advisor myself. I hated going in on a regular basis to check my investments and rebalance them. The process is tedious and time-consuming. M1 Finance has automatic rebalancing, so once you set the percentages of each slice, it’ll do the rest for you. This way you always stay on course with your asset allocation plan.
- Built-in tax efficiency. There are certain hacks to buying and selling investments that let you take the most advantage of your tax impact as possible. You’ll get built-in tax efficiency with M1 Finance, as they take a lot allocation strategy when they sell investments, automatically reducing the amount you’ll owe in taxes. Keep in mind, this only applies on taxable accounts.
- Cash balance control. Once in your account, you can set a maximum cash amount, and anything over that will be automatically invested for you. This way, you don’t have cash sitting by, collecting dust (and no interest). For instance, say you want a maximum cash balance of $500. If for some reason your account has $1,000 in cash (maybe after a large deposit), M1 will leave $500 (your max) in your account and invest the other $500 automatically for you, according to your Pie slices.
M1 Borrow is one of the newest features available through M1 Finance. It allows you to borrow up to 35 percent of the value of your account balance at a competitive 3.75 percent. Meaning if you have $100,000 in your account, you can borrow up to $35,000 at a very low rate. The only catch is that you have to have a margin brokerage account with at least $25,000 in it.
According to Brian Barnes, the Founder and CEO of M1 Finance, “when borrowing, it’s important to realize a dollar is a dollar. Your main goal should be to get the lowest interest rate and most flexible terms. The best way to do this is to collateralize it against your most liquid investments.”
You can use the money for whatever you want. Since the rate is so competitive, it makes sense to use this feature instead of something like a HELOC for a app德扑圈官方网址home improvement, or a traditional car loan for a new vehicle. 3.75 is even significantly lower than most margin rates on investment accounts, meaning you can use the money to reinvest in your M1 Finance portfolio.
Here’s a snapshot of their rates, comparatively:
At the time of writing, you can get a free investment account transfers. Now through the end of 2018, M1 will cover the cost of any investment account transfer or rollover of $15,000 or more.
As a bonus, you can also get one-on-one service from M1’s rollover concierge who can help save you time and make your transfer as smooth as possible.
M1 Finance pricing details
M1 doesn’t cost anything to use—it’s completely free. While there are some fees for having an account (like for wire transfers), you won’t ever be charged for commissions on any trades, to use the platform, or to make deposits and withdrawals from your bank.
Regarding minimums, M1 does have a $100 minimum account balance to open a taxable account, and a $500 minimum to open a retirement account. These are both incredibly low compared to many brokers out there.
What we like about M1 Finance
Here are some of the features we like about M1 Finance:
- There’s a large investment selection
- They’ll invest idle cash (after you set a max)
- You can buy pieces of shares (this hasn’t been done widely since Sharebuilder)
- There are no fees for trading or opening an account
- You can set up recurring deposits at any interval
- Multiple account types
- Ability to borrow at a cheap rate (M1 Borrow)
What we don’t like about M1 Finance
There are only a few things we don’t like about M1:
- A new type of platform—there’s a definite learning curve to M1’s lingo and Pie methodology
- Limited investing advice—other robo-advisors like Betterment offer plans that give you access to investment professionals; here you’re on your own
- Lack of control—while you choose your slices, M1 makes batch trades at the end of the day so it’s impossible to time a specific trade at the right moment
Pros & Cons
- No minimum starting balance — Open an account with $0 but begin investing with $100 (or $500 for an IRA)
- No fees — As in no management fee and no trading fees
- Best of self-directed and robo-advisor investing — Choose your own investments, then M1 Finance manages your “pies” for you
- Not a trading platform — Despite the absence of trading fees, M1 can’t be used as a trading account for individual securities.
- Lack of tax-loss harvesting — M1 offers tax priority selling but not tax-loss harvesting, which is now commonly offered by many investment services.
M1 Finance has a nice value proposition. They give you the benefits of a robo-advisor with the control of a traditional brokerage—but both have limitations. If you’re someone who wants a hands-off approach but wants to have a little control when you need it, M1 Finance might be for you.
It’s also a great platform for those who like simplicity and visuals more than diving into the details of every single trade, analyzing every single penny.
Overall, I’d give a thumbs up to M1 Finance – go ahead and give it a shot. It’s free, so you really don’t have anything to lose.