5 MINUTE REVIEW: M1 Finance Free Robo Investing Platform

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 is essentially a hybrid platform, combining features of a traditional brokerage account with a modern roboadvisor.

M1 Finance focuses on low cost passive investing with additional features such as automatic rebalancing of your portfolio and tax minimization strategies. The only fees you pay are the fees associated with any ETFs you invest in. M1 Finance is a completely free investing platform.

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.

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M1 Finance Custom Pies

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.

Most investing platforms charge an asset management fee in exchange for any kind of investment guidance. M1 Finance offers these prebuilt pies for free. They do not charge any fees. It is important to understand however that these prebuilt pies are not specific to any one persons needs. We recommend talking to a financial advisor if you are looking for investment guidance specific to you.

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!

In this article, we talk more about fractional shares on M1 Finance. 

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Amazon Stock, August 8th 2018

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).

In this article, we talk more about the safety and legitimacy of M1 Finance.

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M1 Finance BrokerCheck Report

What are the fees and requirements?

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 a minimum of $100 ($500 for retirement accounts). M1 Borrow has a fee of 3.75% APR and a required account maintenance balance of 35% of your initial loan.

Beyond that, these are the requirements to open an M1 Finance account:

  • You must be a US Citizen
  • You must be a permanent US Resident
  • You must be 18 or older
  • You must have a US mailing address

M1 Finance has very basic requirements and a low minimum account balance, making this investing platform very accessible for new investors.

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.

In this article, we talk more about the tax harvesting feature of M1 Finance.

However, there are alternative roboadvisors that offer more effective tax loss harvesting strategies. If you are interested  in this feature, we recommend checking out Betterment or Wealthfront.

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.

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M1 Finance Automatic Rebalancing

What are the pros of M1 Finance?

  1. M1 Finance is a 100% free investing platform with a wide array of features and benefits that go above and beyond other free investing platforms out there.
  2. M1 Finance is a 100% passive investing platform. This automation is great for people who do not want to worry about remembering to contribute to or rebalance your portfolio.
  3. M1 Finance offers complete flexibility with the custom pies. This flexibility is not available through most roboadvisors.
  4. Fractional shares allow you to remain fully invested and improve diversification.
  5. Automation of your portfolio takes your emotions out of investing.
  6. M1 Finance offers retirement accounts
  7. Bank deposits can be automated.

What are the cons of M1 Finance?

  1. Investments are limited to ETFs and stocks trading on the NASDAQ, NYSE or BATS. No mutual funds or over the counter stocks.
  2. Other roboadvisors offer more efficient tax loss harvesting, however they charge a fee for using the platform.
  3. Market orders are automated. You cannot use any other types of buy or sell orders.
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M1 Finance Website Homepage

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. M1 Finance has the capability of being a 100% DIY platform.

Who is M1 Finance not for?

M1 Finance is not an ideal platform for short term traders or mutual fund investors. It is also not ideal for investors in over the counter stocks or executing other unique investment strategies such as hedging or short selling.

Trading is the goal of profiting off of short term price fluctuations in the market. Trades are usually executed over periods of weeks, days, or even minutes. Many traders use price analysis called technical analysis to exploit predicted movements in the market. While using technical analysis, there is no consideration of underlying financial stability of a company. Instead, technical analysts use trading patterns, volume and price movements to predict future market prices. Trading is considered highly speculative and can be extremely risky if you don’t know what you are doing. M1 Finance is not the ideal platform for an active trading investment style.

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Warren Buffett, Famous Long Term Investor

Investing vs Trading

M1 Finance puts a strong emphasis on investing, not trading. While many people have different definitions of trading vs investing, we believe it is simple; Investing is for the long term. History has shown us that the most successful investors follow a long term investing strategy. This can be as long as a few years to decades if not longer. Long term investors use fundamental analysis. Fundamental analysis is the strategy of valuing a company based on underlying financial analysis. A fundamental investor will look at income statements, balance sheets, and cash flows in an effort to come up with an intrinsic value of a stock. Intrinsic meaning the true underlying value of the company.

Once they have an idea of what the stock is actually worth, they will look at what price the company is trading at in the current market. If the company is trading at a price lower than their intrinsic value, the stock is at a a discount and they will buy the stock. If the stock is trading at a price higher than their intrinsic value, they will not buy or they will wait until the price comes down below the intrinsic value. Some of the greatest investors of all time have been fundamentalists. Investors such as Warren Buffett, John Bogle, and Benjamin Graham were all fundamental investors that built fortunes based on their long term investing principles.

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