M1 Finance vs Robinhood
Investing Simple is an affiliate of M1 Finance. This relationship does not influence our opinion of this platform.
Recently dozens of new online trading platforms and robo advisors have popped up. These services have quietly started to disrupt the traditional brokerage industry. The majority these platforms aim to help beginner investors. M1 Finance and Robinhood are two of the most well known free investment 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 vs Robinhood!
What Is M1 Finance?
M1 Finance was launched in 2016 and is an online robo advisor and brokerage hybrid for everyday people who want to invest in stocks or exchange traded funds (ETFs). M1 Finance combines features of a traditional brokerage account with a modern robo advisor. First, you select your investments and your allocations. Then, you automate the entire portfolio!
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.
How Does M1 Finance Work?
Step 1: You can create your account here. When you sign up, you will be guided through a process to build your portfolio or pie. You may choose to create a custom pie from a variety of ETFs and stocks offered on the M1 Finance platform. You can also choose from a variety of expert pies that are designed by M1 Finance that offer templates for ideal pie creations. Your pie may contain 1 stock or up to 100.
Within each pie, you can have up to 100 stocks or ETFs. Each can carry a different weight in your portfolio. There is no limit on the number of pies you can have in your M1 Finance account! For example, you could have one growth-oriented pie and one income-oriented pie in your M1 Finance account.
Step 2: Once your account is open, you will be guided to create your brokerage account. This is where you will put in your personal information and decide which type of investment account you are going to open up (individual brokerage account, retirement account, etc.). You may open up multiple types of accounts if you’d like.
Step 3: After you have set up your M1 Finance account, you will be able to link a bank account and begin funding your account. M1 Finance requires a minimum deposit of $100 ($500 for retirement accounts) to begin investing.
M1 Finance Expert 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. These are called custom pies.
It is important to understand that these portfolios or custom pies are not tailored to any one person. Each investor has a unique set of circumstances.
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 outside of the ETF expense ratio. This is an expense you pay regardless of what platform you invest with.
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!
What is M1 Spend?
M1 Spend allows you to earn cash back rewards on an M1 Visa debit card. Yes, finally there is a debit card where you can earn rewards. 1% cash back on purchases and 1.5% APY.
This debit card allows you to integrate your free brokerage account with an easy way to actually use your cash. With the simple click within the app you can transfer money between your M1 brokerage account into your M1 Spend debit card.
An M1 Spend account will give you 4 free ATM withdrawals per month. For an annual fee of $50, M1 Spend Plus gives you 1% cash back on all purchases. APY per year is 1.5%, $0 minimum balance requirements, and FDIC insured up to $250,000.
M1 Finance Fees And Requirements
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. M1 Borrow allows you to borrow against the securities in your account.
Beyond that, these are the requirements to open an M1 Finance account:
- US Citizen
- You must be a permanent US Resident
- 18 years old 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.
What are the pros of M1 Finance?
- 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.
- 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.
- M1 Finance offers complete flexibility with the custom pies. This flexibility is not available through most roboadvisors.
- Fractional shares allow you to remain fully invested and improve diversification.
- Automation of your portfolio takes your emotions out of investing.
- M1 Finance offers retirement accounts
- Automated Bank deposits
What are the cons of M1 Finance?
- Investments are limited to ETFs and stocks trading on the NASDAQ, NYSE or BATS. No mutual funds or over the counter stocks.
- Other roboadvisors offer more efficient tax loss harvesting, however they charge a fee for using the platform.
- Market orders are automated. You cannot use any other types of buy or sell orders.
What Is 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 in depth company research on the platform is a struggle. This is because Robinhood aims to be as simple and user-friendly as possible.
Commission Free Trading
Robinhood allows users to trade stocks, ETFs, options, and cryptocurrency completely free. All investors benefit from saving money on fees. This is specifically useful for active traders who make frequent day to day trades.
Robinhood’s application is easy to use and not overwhelming like other platforms can be. This may be a benefit for certain investors who are just starting out and would like a simple and easy to use the platform. For investors looking to conduct more research and build trading strategies, you may find the Robinhood platform is fairly limited.
Robinhood offers a subscription service called Robinhood Gold for a fee of $10 to $15 per month. In the Robinhood Gold platform you have the ability to trade pre and post market starting at 9 am and ending at 6 pm. Robinhood Gold lets you trade on margin once your account has a $2,000 minimum balance.
Robinhood is good for beginners who want an easy platform to use and not a complicated trading platform. A more advanced trader/ investor may 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.
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!
M1 Finance vs Robinhood: The Verdict
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.
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.
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 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.
|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|