What is M1 Finance?
M1 Finance was founded in 2015 and I would define a hybrid between a Robo-advisor and a traditional broker. M1 Finance removes many of the intricacies of investing by visualizing things and renaming features to suit the investor who wants a hands-on approach.
Using a methodology they call ‘Feet’ and ‘Cuts’, you can select a variety of investments and the percentage of your portfolio that you want to recover. M1 has an amazing app, lots of features, and offers a new way to invest. Let’s take a look at some of the best features they have.
M1 Finance features and how it all works
The first step to get started with M1 Finance is to open an account. Here is a short video on how to open an account and get started with M1:
- Choose individual investments and add them to your cake. Each action you choose will represent a “piece” of the pie. So if you own Apple and Google, you have two pieces for your pie.
- Define the target weight for each cut. This is the amount of your wallet you want to dedicate to the specific section. For example, if you want 10 percent of your cake (portfolio) to be in Google shares, you need to set that portion at 10 percent in your cake. M1 Finance allows partial purchases, so this percentage will always be around 10 percent until you change it.
- Finance your cake. If you pour money into your account, the money is spread over the different parts of your cake. So, for simplicity, if you had a pie with 10% from Google, 20% from Apple and 70% from Amazon, your deposits would follow the split. A $ 100 deposit therefore gives $ 10, $ 20 and $ 70 to each investment (minus commissions).
- See how your portfolio works. Over time, relationships will get out of control as stocks rise or fall in value. You can see it visually while looking at your overall cake.
- See how it is in balance again. When you deposit new funds, the portions will return to your designated goals, so you always have a balanced portfolio as you wish.
- Add sectors, delete and edit them. If you do not like a part, pull it out (it’s like selling shares). If you want a new slice, add it (buy sauce). Or you can change the cut to a different percentage and M1 will adjust accordingly.
The cake also contains what M1 Finance Expert calls cakes. According to the website, “M1 Expert Pies uses proven methodologies used by some of the best brokers and advisers in the world.”
Finally, you can create a completely custom cake to get the look you want. M1 claims that you can “choose individual stocks, ETFs, and even combine them with Expert Pies to build your ideal long-term portfolio.”
M1 Finance offers a wide range of stocks and ETFs. You can choose any investment that is traded on one of the major exchanges, offering you an almost endless supply of options.
One of the best things about investing with M1 Finance is that they use fractional shares. Those who remember the old Sharebuilder will know what I mean, but those who do not let me explain. Fractional shares allow you to invest every dollar, up to the penny, in a single share.
For example, if an XYZ share costs $ 200 but you only have $ 100 to invest, M1 Finance will buy 0.5 shares for you. Any other broker would require you to have the full amount of $ 200 to buy a full share.
That means you will have at least no cash while you wait to get enough to buy an entire pool of shares.
M1 also offers several options for accounts:
Individual – An individual taxable account for general investment purposes
Joint – A joint account that you can create with a spouse, partner, or family member
Retirement: M1 offers Traditional, Roth and SEP IRAs, so you are fully covered for retirement planning
Trust – An account created on behalf of another person or group
M1 Finance is very important to automate the things that most investors hate. It is probably one of the large selling points to use M1 Finance over a traditional broker but you can follow a “set and forget” approach with your investments. Here are some benefits:
- Recurring investments. You can set your schedule to invest and deposit money whenever you want, automatically. For example, you can deposit $ 200 each week or $ 100 each time you get paid. This is a great feature for both people who receive a regular paycheck and people who have irregular income, because you can set up monthly or quarterly deposits if you want.
- Automatic rebalancing. My wallet balance is one of the main reasons I switched to a robo advisor. I hated going regularly to check my investments and rebalance them. The process is tedious and time consuming. M1 Finance has automatic rebalancing, so if you set the percentages for each haircut, it will do the rest for you. This way, you are always in line with your asset allocation plan.
- Built-in tax efficiency. There are some parentheses in buying and selling investments that will allow you to make the most of your tax impact. Get built-in tax efficiency with M1 Finance as they follow many award strategies when selling investments, automatically reducing the amount owed in taxes. Remember, this only applies to taxable accounts.
- Cash balance management. Once in your account, you can set a maximum amount of cash and everything related to it is automatically invested for you. That way, you won’t have money to collect and accumulate dust (or interest). For example, suppose you want a maximum cash balance of $ 500. If for some reason you have $ 1,000 in cash (maybe after a large deposit), M1 will leave $ 500 (your maximum) in your account and automatically invest the others. $. 500 for you, based on your cake slices.
M1 Borrow is one of the new features available through M1 Finance. This allows you to borrow up to 35 percent of your account balance value at a competitive 3.75 percent. That is, if you have $ 100,000 in your account, you can borrow up to $ 35,000 at a very low rate. The only downside is that you need to have a brokerage account with at least $ 25,000.
According to Brian Barnes, founder and CEO of M1 Finance, it’s important to realize that one dollar is one dollar. Your main goal should be to get the lowest interest rate and the most flexible terms. The best way to do this is to secure it against your most liquid investments. ‘
You can invest the money for anything you want. Because the rate is so competitive, it makes sense to use this feature instead of something like a HELOC for a home improvement or a traditional auto loan for a new vehicle. 3.75 is even significantly lower than most investment account margin rates, meaning you can use the money to reinvest into your M1 Finance portfolio.
M1 Finance pricing details
The use of the M1 costs nothing, it is completely free. Although there are some fees attached to an account (such as bank transfers), there are no fees charged for any transaction, for using the platform, or for making deposits and withdrawals from your bank.
In addition to the minimums, M1 has a minimum balance of $ 100 to open a taxable account and a minimum of $ 500 to open an anniversary account. Both are insanely bad compared to many brokers out there.
What we like about M1 Finance
Here are some of the features we like about M1 Finance:
- There is a great variety of investments
- They invest idle money (after setting a maximum)
- You can buy shares of shares (this is not extensively done by Sharebuilder)
- There are no commissions for trading or opening an account
- You can set up recurring deposits at each interval
- Different types of accounts
- Possibility to borrow cheaply (M1 loan)
What we don’t like about M1 Finance
There are only a few things we don’t like about M1:
- A new kind of platform: there is a definite learning curve for M1 jargon and Pie methodology
- Limited Investment Advice – Other robotic advisors like Betterment offer plans that give you access to investors; here you are alone
- Lack of control – While choosing your portions, M1 executes bundle transactions at the end of the day, making it impossible to plan a specific trade at the right time
No minimum starting balance – open an account with $ 0, but start investing with $ 100 (or $ 500 for an IRA)
No Fees: Like no management fees and no trading fees
The best of self-directed investments and robo-advisor: choose your investments, then M1 Finance will manage your “cakes” for you
It is not a trading platform: despite the absence of trading fees, M1 cannot be used as a trading account for individual shares.
Lack of tax loss collection: M1 offers tax priority, but no tax loss collection, which many investment services now offer.
M1 Finance has a good value proposition. It offers you the advantages of a robo-advisor with the management of a traditional brokerage, but both have limitations. If you want someone who wants a hands-on approach but wants some control when you need it, M1 Finance could be for you.
It’s also a great platform for those who love simplicity and visuals more than digging into the details of each trade and analyzing every penny.
Overall, I want to give M1 Finance a thumbs up – go ahead, give it a try. It’s free, so you really have nothing to lose.