How Does M1 Finance Work?

Investing Simple is affiliated with M1 Finance. This relationship does not influence our opinion of this platform.

Times have changed, and investing in the stock market is not the same as it was 10 years ago. The rise of the roboadvisor and algorithm based trading have taken the brokerage industry by storm. One of the most established examples being M1 Finance.

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M1 Finance Website Homepage

What is M1 Finance?

M1 Finance was launched in 2016 and is an online roboadvisor for everyday people who want to invest in stocks or exchange traded funds (ETFs). M1 Finance focuses on low cost passive investing with additional features such as automatic rebalancing of your portfolio and tax minimization strategies. M1 Finance operates by creating portfolios of stocks and ETFs called “Pies”. Each pie can be customized meaning you can choose specific stocks and ETFs that you want to add. For example, you could build a pie with 50% Tesla stock and 50% Google stock. There are also prebuilt pies that M1 Finance has created based upon the amount of risk you would like to take, investment time horizon, and personal preferences.

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M1 Finance Custom Pies

M1 Finance also allows you to buy fractional shares of a corporation within your pie. For example, if your M1 Finance account had a total of $1,000 in it, but you would like to buy a share of Amazon for $1,885.60 then you would be offered a fractional share of Amazon to hold in your portfolio valued at $1,000 or less depending on its weight in your pie. With fractional shares, you can buy as little as 1/10,000th of a share!

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Amazon Stock, August 8th 2018

What are the fees?

M1 Finance puts an emphasis on its low fee structure. There are no trading commissions or mark up fees for using M1 Finance as long as you open a brokerage account and fund it with $100 ($500 for retirement accounts).

You may be asking yourself, so how do they make money? M1 Finance makes money  in a way similar to Robinhood, by directing order flow and offering margin to investors.

What are the features of M1 Finance?

M1 Finance offers a variety of additional features, the two most prominent being tax minimization and smart rebalancing. Using a simplified method of tax loss harvesting, M1 Finance offers options to sell positions in the most tax favored way.

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M1 Finance Tax Minimization

However, there are alternative roboadvisors that offer more effective tax loss harvesting strategies. Another feature of M1 Finance is smart rebalancing. Using smart rebalancing, all deposits will be automatically invested into your “pie” without your manual input. When withdrawals are taken out of your account it will automatically rebalance your pie so it has the correct weight of your holdings at all times.

Is M1 Finance safe?

M1 Finance is a member of Financial Industry Regulatory Authority (FINRA) and the Securities and Investor Protection Corporation (SIPC). Being a member of SIPC, you will be insured in the event that M1 Finance goes out of business or goes financially insolvent. Each account at M1 Finance is insured up to $500,000 in coverage ($250,000 for cash).

Who is M1 Finance for?

The ideal user for M1 Finance is someone who is a passive investor, relatively fee sensitive, and does not want to spend a significant time managing their investments. This would not be an ideal platform for active traders.

Click Here To Get Started With M1 Finance

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