M1 Finance: What Is An Expert Pie?

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.

M1 Finance is a pie based investing platform. No, this is not the kind of pie your grandmother would make, but instead this is a pie based investment portfolio.

Within M1 Finance, your portfolio is referred to as a pie. Your pie breaks down what positions or securities you would like to hold in your account as well as how much weight they carry in your portfolio. You can create your own custom pie in M1 Finance and choose your own investments or you can invest in an M1 Finance expert pie.

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

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M1 Finance Pie Based Investing

M1 Finance also offers expert pies on the platform. These expert pies are created by M1 Finance and are offered to provide increased diversification as well as low cost alternatives to some of the other investment options on the market. These expert pies can also be a suitable choice for beginners who do not want to build an investment portfolio from scratch. These expert pies can make up your entire investment portfolio or just a portion of it.

M1 Finance creates these professionally built pies based on generally accepted investing principles as well as past performance data. They offer a variety of expert pies, each composing of 2 to 20 securities depending on the type you choose. Expert pies are designed by M1 Finance investment professionals as well as third party partners such as Cambria Investments. M1 Finance offers 9 different categories of expert pies.

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M1 Finance Expert Pies

Here are the categories of the M1 Finance expert pies…

  1. General Investing: Choose from risk levels ranging from ultra conservative to ultra aggressive.
  2. Plan For Retirement: Invest for your target retirement date. Your portfolio allocation will adjust over time to become more conservative as you approach retirement.
  3. Responsible Investing: Socially conscious investing. This investment category invests in companies that are concerned about financial obligations as well as social and environmental obligations.
  4. Income Earners: Contains dividend and interest paying securities.
  5. Hedge Fund Followers: Pies that track public funds such as Berkshire Hathaway and Icahn Enterprises.
  6. Industries & Sectors: Invest in one segment of the overall economy.
  7. Stocks & Bonds: Multiple options of diversified stock and bond exposure.
  8. Other Strategies: Other investment options like blue chip stocks, domestic growth, domestic value and more.
  9. Trinity Portfolios: Portfolios created by Cambria Investments. Learn more about Cambria Investments here.
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M1 Finance Expert Pies

M1 Finance has a quantitative model for choosing the specific ETFs within each expert pie. This model takes into account variables such as fees, assets under management, and tracking error of standard deviation. These variables are considered and result in low cost ETFs that track the underlying benchmark(s) better than others.

There are no fees associated with using M1 Finance or the expert pies. However, all ETFs have management fees associated with the fund. M1 Finance chooses ETFs with some of the lowest fees. They are also very transparent about the management fees charged by ETFs on their platform.

Click Here To Get Started With M1 Finance

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 platforms have taken the brokerage industry by storm. One of the most established examples being M1 Finance.

M1 Finance allows you to create your own portfolio of ETFs and stocks with no trading fees or commissions. What separates M1 Finance from competitors is the offering of partial shares and automated investing features. Partial shares allow investors to create their own portfolio of stocks or ETFs by buying as little as 1/10,000th of a share at a time. Your M1 Finance account can be set up to automatically invest your cash balance. In doing so, M1 Finance automatically rebalances your portfolio by buying whatever you are low on. For the first time ever, investors can build a well diversified investment portfolio with as little as $100.

Click Here To Get Started With 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 and brokerage hybrid designed 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. All of these features are included free of charge.

Other platforms like Stash and Acorns offer these prebuilt portfolios, but they charge an asset management fee for this. M1 Finance is one of the only reputable investing platforms that offers expert created portfolios for free.

Click Here To Get Started With M1 Finance

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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! This allows you to have a well diversified portfolio with as little as $100, the minimum balance required to open an account with M1 Finance.

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Amazon Stock, August 8th 2018

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.

Here is more information on these expert pies.

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Opening 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.

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M1 Finance Account Type

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.

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Custom M1 Finance Pie

If you are new to M1 Finance, you may want to consider a steady entry into the market. In the investment community, we call this dollar cost averaging. This is simply investing your money into your portfolio over a period of time rather than all at once. We talk a great deal about dollar cost averaging in our beginner’s guide to the stock market.

Say you have $100,000 to invest. You may want to invest just $10,000 into the market every month for 10 months. By doing so, you lower your risk of investing into an overheated market. When you invest over time using dollar cost averaging, you have less risk of getting in at the top of the market. However, the disadvantage to dollar cost averaging is that you may miss out on exceptional market performance by not being fully invested during that period of time. Most financial professionals and seasoned investors would agree that dollar cost averaging is the way to go.

What Are The Fees?

M1 Finance has grown a great reputation for its no 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. Here is our article on this.

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.

For some investors, the tax loss harvesting offered by other roboadvisors is worth paying for the annual management fee. However, if you are looking to take advantage of this tax minimization M1 Finance offers this for free.

Betterment is a roboadvisor that offers tax loss harvesting. Betterment, however, charges an asset management fee of 0.25% while M1 Finance charges nothing. You can read our review of Betterment here.

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M1 Finance Tax Minimization

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.

Have you heard of the old saying “buy low, sell high?” Well, M1 Finance will do this for you! When you add money to your portfolio, you can opt to have M1 Finance automatically invest this money. This money will be used to purchase whatever you are low on in your portfolio. If you decide to withdraw and take money out, M1 Finance will sell whatever you are overweight or high in. This ensures that your portfolio is well balanced 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?

In most cases, M1 Finance is best for 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. Any individual stock investors should have a minimum time horizon of 5 years. As Warren Buffett has said, investing in stocks with a time horizon of less than 5 years is speculating.

Who is M1 Finance Not For?

M1 Finance would not be an ideal platform for active traders. Anyone who would like to make frequent trades in and out of the market should try alternative platforms to M1 Finance such as Robinhood. M1 Finance is also not a great platform for those looking for hand holding or an in person broker. M1 Finance is able to offer all of these features for free by minimizing the expenses the business incurs. Unfortunately, this means no brick and mortar locations or brokers you can call on the phone.

Click Here To Get Started With M1 Finance

What Are Fractional Shares On M1 Finance?

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

If you have been exploring the M1 Finance app, or researching the platform online, you have probably come across this term; fractional shares. 

To put it simply, a fractional share is a fraction of one share of a company.

But wait a second… a share of a company is a fraction of that company. So, why do we need a fraction of a fraction of a company?

The answer: not all shares are created equally.

Take Amazon for example. Right now, there are around 488 million shares of this company. The market capitalization, or market value, of this company is around $935 billion. As such, each share is valued at around $1,916 per share.

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Amazon Stock August 14th, 2018

Now, let’s consider Ford. Right now, there are around 3.91 billion shares of this company. The market capitalization, or market value, of this company is around $37.7 billion. As such, each share is valued at around $9.64 per share.

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Ford Stock August 14th, 2018

Now, we don’t know exactly how many shares of Ford or Amazon are out there, so that results in some price deviation. But what we have here is two popular stocks with a drastically different share price.

So, let’s say you are an investor and you like Ford and Amazon. You want to own an equal amount of Ford stock and Amazon stock. You are just getting started with investing, so you have $3,000 to invest.

In a perfect world, you could invest $1,500 into each stock. (Spoiler alert, you can)

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Portfolio Allocation Goal

BUT! You are only able to invest in whole shares of each of these stocks.

Your only option is to invest $1,918 in one share of Amazon stock and invest the rest in Ford stock. After buying your share of Amazon stock, you have $1,082 left. You are able to purchase 114 shares of Ford stock. On top of that, you end up with $3.56 left over.

This is what your investment portfolio would look like…

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Actual Portfolio Allocation With Whole Shares

Wait a second… you liked both of these companies equally! You wanted to invest half of your money in Amazon and half of your money in Ford. Now, you are overweight in Amazon and underweight in Ford.

This exact situation has been a frustrating predicament for investors for years. You set your goals for diversification, but that pesky share price causes your actual allocations to change.

Enter 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). One of the biggest benefits of this investing platform is the fact that you can invest in fractional shares.

M1 Finance splits every share into 1/10,000th of a share. This allows you to trade the exact amount and achieve your portfolio allocation goals.

Back to our example, let’s consider Amazon stock. With M1 Finance, you can buy as little as 1/10,000th of a share of this stock. Each of these fractional shares would have a value of 19.18 cents.

Now, your $1,500 investment in Amazon stock would actually be about 78% of one whole share. (7,819/10,000 for the math people)

This means that with M1 Finance, you can set your allocations for each stock and meet those allocations regardless of the share price.

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Actual Portfolio Allocation With Fractional Shares

M1 Finance allows investors to purchase fractional shares. The fractional share allows small investors to invest in stocks with a high share price. Traditionally, you could not buy Amazon stock unless you could afford a whole share. This also allows investors to better diversify their portfolio without ending up overweight in a certain stock simply due to the share price. Finally, fractional shares also allow investors to remain fully invested.

Remember that $3.56 left over from the first example? While it may seem insignificant, that is money that is sitting in cash that is not being put to work through investment. With M1 Finance, you could invest that money in fractional shares.

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M1 Finance Website

Now, did M1 Finance invent this concept of fractional shares? The answer is no. In the past, brokers have offered fractional shares to investors but they would typically charge a fee for this convenience. M1 Finance does not charge a penny.

To recap, fractional shares have these benefits:

  1. They allow small investors to consider stocks with high share prices like Amazon or Google
  2. They allow you to remain fully invested and reduce or eliminate idle cash
  3. They allow you to reinvest your dividends into partial shares of the issuing stock
  4. They allow you to allocate your portfolio as close to your allocation targets as possible
  5. With M1 Finance, fractional shares are available free of charge

Click Here To Get Started With M1 Finance