Investing Simple is affiliated with M1 Finance. This relationship does not influence our opinion of this platform.
In recent years, dozens of new online trading platforms and robo advisors have emerged. These services have quietly started to disrupt the traditional brokerage industry. The majority these platforms are geared towards individual investors and offer different types of features that aid the do it yourself investor. Robinhood and M1 Finance are some of the most well known of these platforms. As someone looking to enter the stock market, it can be difficult to decide on what platform is the best for you.
In this review, we will be highlighting some of the key differences between M1 Finance and Robinhood!
First up, Robinhood
Robinhood is an online brokerage that focuses on commission free investing. All buys and sells on Robinhood are completely free. Robinhood is an easy to use platform that simplifies investing and caters towards the millennial investor. Since its release in 2015, Robinhood has gained respectable user growth in the brokerage community, now with over 5 million users. On the Robinhood platform you are free to invest in stocks, ETFs, options and even some crypto assets such as Bitcoin and Ethereum. Robinhood also offers a tiered premium gold service for margin trading. Robinhood has watch lists and corporate action trackers, but performing any company research on the platform is very limited. This is because Robinhood was designed to be as simple and user friendly as possible.
For more information on Robinhood, check out this review by Ryan Scribner.
Robinhood is good for beginners who want to get started with investing without using a complicated trading platform. However, experienced investors will find that this platform is too basic. Many Robinhood users will conduct investment research on other sites or platforms and use Robinhood strictly for transactions.
Robinhood certainly met the goal of being the most accessible investment platform out there with a $0 minimum account balance and $0 in trading commissions. For this reason, Robinhood is the easiest brokerage account to get started with.
There are, however, a number of areas where this platform falls short. Here is our list…
- Robinhood does not offer a DRIP or dividend reinvestment plan. You will need to reinvest your dividends on your own.
- Robinhood only offers purchase of whole shares. This is more bad news for dividend investors, as you cannot reinvest those dividends into partial shares. You will need to save up until you can afford another whole share of that stock.
- Robinhood does not offer automation of the portfolio. While you can automate deposits to your Robinhood account, you cannot automate investments. Sorry passive investors!
- Robinhood does not offer retirement accounts. They have stated that they hope to offer this down the road, but no timeline has been mentioned.
- Robinhood does not offer any portfolio guidance or prebuilt investment portfolios. You are on your own!
Robinhood offers a great free service and has gotten millions of people to invest in the stock market by significantly lowering the barriers to entry. However, as we mentioned there are some areas where this platform falls short.
Next, M1 Finance
M1 Finance aims to take Robinhood’s idea of commission free investing a step further. M1 Finance has features the DIY investor and the passive investor will love. The M1 Finance platform allows you to build a custom portfolio with whatever stocks and ETFs you choose. M1 Finance also allows you to buy fractional shares of companies (up to 1/10,000th of a share) which allows investors to have complete diversification even within smaller accounts.
Once your portfolio is built, M1 Finance will allocate any deposits into your account to the group of holdings you chose. With M1’s automated reinvestment feature, you won’t have to worry about idle cash in your portfolio as you can remain fully invested. Dividends within the account will be reinvested once the cash balance hits $10. M1 Finance also offers tax minimization strategies, recurring investments, as well as professionally created portfolios. The best part? M1 Finance offers their service 100% free with no commissions on trades and no price mark ups.
For more information on M1 Finance, check out this review by Ryan Scribner.
Which one is the winner?
Robinhood and M1 Finance both offer a similar product, but with one big difference being their target user.
The ideal user of Robinhood is a relatively active trader, someone who is making a considerable amount of buys and sells in their account. With Robinhood offering options and crypto trading you can see how their platform gears towards a more active individual.
M1 Finance on the other hand offers a service designed for a long term relatively passive investor. M1 Finance puts a strong emphasis on the difference between trading and investing on their website. If you are an active trader making a lot of buys and sells, Robinhood is going to be a better platform for you. For those investors who are long term oriented and have a more passive strategy, M1 Finance will be the better platform for you. You could always try both platforms to see which is a better fit for your investment style.
For dividend investors, M1 Finance is the clear winner. The automated reinvestment of cash in the account above $10 and the offering of fractional shares make this the ideal platform for long term income investors.
|Minimum Account Balance||$100 ($500 Retirement Accounts)||$0|
|Investments||Stocks and ETFs on NYSE, NASDAQ and BATS||Stocks and ETFs on NYSE, NASDAQ, Options, Cryptocurrencies|
|Account Types||Taxable Account, Roth IRA, Traditional IRA, SEP IRA, Joint Trusts||Taxable Account|
|Margin||All accounts over $2,000 have automatic access to margin||Robinhood Gold tiered subscription starting at $6 per month, $2,000 minimum account balance|
|Short Selling||No||Through Options|
|Automation||Automated Deposits, Automated Rebalancing, Automated Investments||Automated Deposits|
|Dividends||Automated Reinvestment||No DRIP|
|Tax Harvesting||Tax Minimization||No|
|Best For||Long Term Investors, Passive Investors, Dividend Investors||Short Term Investors or Traders|