It’s no secret that investing is complicated. So anytime it can be made easier, folks get pretty excited. That’s why there’s been a lot of hype about M1 Finance, a completely free automated investing robo-advisor brokerage hybrid.
Today, I’ll take a closer look at all that M1 has to offer.
What is M1 Finance?
M1 was founded out of pure frustration by Brian Barnes. He (and many others) believe that most financial services are not acting with the investors interest at heart, even worse they are unnecessarily complicated and cumbersome. Brian researched the investment platforms that were out there but couldn't find what he was looking for
What I was trying to do seemed relatively basic. I wanted to be able to pick my investments, and have recurring deposits automatically added to those allocations. I hated the idea of idle cash, so I wanted a platform that put all my dollars to work. Unfortunately, the seemingly simple solution just didn’t exist.
So he created it–a totally free (more on that later), robo-advisor brokerage that lets investors manage their money through automated investing.
Why is this so revolutionary? Well, let’s dive into the details of M1 Finance to find out.
What M1 Finance offers
ETFs & stocks
M1 offers ETFs and stocks through three major exchanges: NYSE, NASDAQ, and BATS. Sure, this sounds like every other trading site, but, thanks to the site’s innovative design, it’s not.
When you first invest, you start by making a “pie” where each investment you choose makes up a slice. You then set up the target weight of each slice. Or, you can choose from already made pies that professional investors have designed. Now all you have to do is add money to your account and M1 assigns the money to each investment based on your asset allocation. That’s it.
You can add, remove, or edit these “slices” whenever you’d like. You can keep track of your investments on M1's easy to use app.
Perhaps the best feature of M1 Finance is that it’s completely free for investors! No really, it is. Part of M1’s mission is to offer commission-free investing. There are also no maintenance fees on your account, so every penny you put in is fully invested.
You do have to have at least $100 in your account to invest, but that's nothing compared to similar services that require thousands. M1 Finance does this by allowing you to buy fractional shares of ETFs, which is one of Jonathan’s favorite things about M1.
Other investing options
Along with ETF and stock options, you can open a retirement account. M1 Finance supports Traditional, Roth, and SEP IRAs.
You can also open a Trust, LLC, or Corporate investment account. You must have a minimum of $5,000 to open an LLC account.
You can reach M1 Finance’s team via:
Pros of M1 Finance
First things first, when you open up m1finance.com, you’ll notice how nicely designed the site is–it’s “just beautiful to look at,” says Jonathan. In addition, some more pros are:
- Commission-free investing
- No management fees
- You can purchase fractional shares of ETF
- Create your own portfolio or choose from one made by professionals–making M1 great for newcomers and investment veterans alike.
- Automated investing–you choose your investments and M1 does the rest
- Easy to use app
- You’ll receive $10 to invest when you refer a friend
Cons of M1 Finance
While M1 is a truly great service, it’s not without its issues. The biggest drawback is one that Jonathan points out:
You can't access mutual funds, so you will not be able to get VTSAX on this platform. But one of the problems with the VTSAX has always been that you have to get a $10,000 minimum in order to buy into it.
While this may be a problem for seasoned investors, for anyone who can’t come up with the $10,000 minimum to invest, M1 Finance is still a perfect fit.
One other aspect of M1 Finance that may be an issue for some is that you can only see the assets you have with them. There’s no way to track all your accounts in different places, like you can with management sites like Personal Capital. While this can be annoying, it shouldn’t sway you against M1.
Luckily, you can use Personal Capital to manage all your accounts, including M1 Finance. So, using Jonathan’s suggestion, you can use Personal Capital as your dashboard, while still having the easy to use M1 Finance app for your accounts solely based with them.
How does M1 Finance make money?
So, if M1 is free for investors, how do they make money? That's a good question. Brian shared with us that M1 makes money through securities lending, payments for directed order flow, and cash management. In the near future M1 is planning to offer investors the option to get a fixed loan at a low 3.5% rate on up to 50% of assets in taxable accounts that are invested with them. This would be a game changer and be a huge improvement over a HELOC which typically offer a variable rate tied to the prime rate and aren't an option for renters
Who should use M1 Finance?
So, now that I’ve highlighted the good and bad, you’re probably wondering: Should I use M1 Finance?
The short answer is yes! Jonathan agrees with the founder, Brian, that M1 Finance solves so many problems for so many people. It’s simple, straightforward, and truly free investing.
But, it's not for everyone. For beginning investors that don't feel comfortable leaving their portfolios solely up to the professionals that create select “pies,” additional research may be required before investing with M1 Finance. After all, it's meant for self-driven investors who want to choose their own investments initially.
It's also not best for traders. M1 investments are meant to be long-term buy and hold investments.
M1 Finance is best for investors who want to control what they invest in, but want the nitty gritty, everyday details left to someone else.