On Sale Now! Why Does The Stock Market Go Up? by Brian Feroldi

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M1 Plus Review 2022: Is this M1 Finance Upgrade Worth It?

First of all, we want to apologize to our friends outside the United States. The cash optimization, debt demolition, and investment automation strategies discussed in this article work only within the USA.

With that out of the way, let’s get to what you will get out of this article.

We’re going to take a deep dive into M1 Finance, a financial services firm based in Chicago, to help you get to FI with less time and effort.

Specifically, we will address the enhanced features of its membership tier – called M1 Plus – to optimize and automate your financial decisions in the short term; to achieve financial independence goals in the long term.  

Many of the tactics we will discuss use M1 Plus as intended by M1 Finance. A few others are experiments that we’ve tested and know will work.

This is also an excellent time to add that we are not CPAs, CFPs, attorneys, and we do not play one on TV. Try these ideas out if you wish, but consult with someone you trust for real financial advice; not a bunch of geeks on the internet who find joy testing boundaries. 

What You’ll Learn From This Article

By the end of this review, you will have learned how to leverage the incredible M1 Plus features offered by M1 Finance to accomplish the following:

  1. Earn 1% on your checking account.  That’s more than double of most online savings banks.
  2. Save $1000s or more a year if you have a consumer loan that is significantly higher than 2% yearly.  Yup, there is a way to get a low 2% rate that you can borrow instantaneously on demand, with zero paperwork, all without showing up in your credit history
  3. Optimize and automate your savings and investing plan. Once you figure out your expenses, as Brad discussed on Day 3 of the 5-Day FI Challenge, you’ll know how much cash you need each month. Then use simple “if this, then that” rules to ensure you always have the money you need for daily expenses. At the same time, you’ll still have every dollar beyond that amount automatically and optimally invested. 

What is M1 Plus?

To access all these services, we will use the premium service offered by M1 Finance, called M1 Plus.

Think of it like Amazon and Amazon Prime – the premium version has more perks that, when combined, makes it a fantastic service that brings far better value. 

These perks include:

  • 1% APY on your M1 Spend checking account
  • 2% APR on hassle-free loans from M1 Borrow
  • Easy ways to optimize and automate how you save, earn, and invest

M1 Finance charges $125/year for M1 Plus, but the good news is that if you are new to M1 Finance, you can try out M1 Plus for 12 months, free of charge.

Even if you aren’t new to M1 Finance and don’t qualify for the free trial, it’s not difficult to get back more value than the $125 you paid for M1 Plus.

How M1 Plus Fits Into Financial Independence

There are three separate but interconnected use cases we’ve laid out in this article.

Head to the Cash Stasher section if you’re looking to keep things super simple and optimize your yield on cash.

If you want to optimize and automate your financial plan, head straight to the Uber Optimizer section. 

And if you have debt on the books and want to demolish it sooner, check out the Loan Consolidator section. 

Ready to get started? Let’s go!

The Cash Stasher: Make Your Cash Work Harder for You With M1 Spend

The Cash Stasher? Say what now? Aren’t we supposed to have most of our cash invested? Who in the FI space would want to hang on to so much cash?

Well, as it turns out, there are a few reasons to consider.

Maybe you have a big purchase coming up within 1-2 years, and you don’t want to risk putting it in the market.

Perhaps you’ve taken a barbell investment approach, investing in an all-equity portfolio on one side, counterbalanced by a large cash stash on the other.   

Or maybe you just find great comfort in having a sizable cash cushion – just because.

Regardless, if your strategy involves holding on to a sizable amount of cash, you should consider upgrading to M1 Plus, where you earn a 1% APY on your M1 Spend checking account.

Some Key Features of M1 Spend

  • 1% APY on Checking for M1 Plus members.
  • 1% Cashback on an M1 Debit Card for M1 Plus Members.

By upgrading (for free if you are new to M1 Finance) to M1 Plus, you automatically qualify for a 1% APY on your M1 Spend checking account.

It’s pretty straightforward if all you want is a place to stash your cash and earn a decent yield.

The M1 Debit Card

At ChooseFI, we generally prefer travel rewards credit cards because they let us earn sizable points and miles bonuses for outsized value in free travel.

Or, you could earn cashback with other credit cards.

Besides a generous signup bonus, many travel and cashback credit cards earn 1.5% – 2% for most everyday items, and up to 5% on bonus categories like groceries, dining out, and transportation.

Another perk is that credit cards have more robust purchase protection against fraud.

There is an important caveat, though.

With credit cards, you must be able to pay off your credit card expenses in FULL to avoid potentially crippling interests and fees.

So if you want simplicity, or just hate the idea of credit cards, and still want to earn 1% cashback, the M1 Debit Card that comes with M1 Spend is a good option.

Next Steps

That said, here are some next steps for you if the Cash Stasher makes sense for your financial goals.

  • Activate M1 Plus and get 1% free for a year if you are new to M1.
  • Move as much of your cash into your M1 Spend Checking Account as you wish to.
  • Request your M1 Debit card.

 Ready to Open Your M1 Finance Account? Click here!

Uber Optimizer: Optimize and Automate Your Way to FI

Many of us here in the FI community like the idea of optimizing our finances and our lives in general. Some common questions include:

  • How do I get the highest yield on my money?
  • Where can I find a lower cost of living?
  • How do I get the most significant value from my travel miles and points?
  • How do I max out my tax-advantaged retirement accounts?
  • What kind of investment portfolio should I have?
  • How do I get myself (or my kids) the education they need, for the least amount of money? 

Why Optimization and Automation is Such a Powerful Combo

Here’s the thing about goals: financial or otherwise.

If they are worthy enough for your long-term welfare, it is going to take discipline and grit to achieve them over, well, the long term.

Most people are good at deciding to do something good for themselves, such as personal fitness or reaching Financial Independence. They are also good at figuring out what they need to do to get there.

The stumbling block is sticking to the plan. If you’ve ever made a New Year’s Resolution and then gave up within a few weeks, you know exactly what we speak of. 

What if you could just be the one to set the direction, then delegate the follow-up to an app? Wouldn’t it give you a far better shot of meeting your goals to earn more, spend less, and invest better?

The 80:20 Rule

Optimization is not just about how much money we save, earn, and grow. It’s also about simplicity and effort and getting the most significant impact for the most efficient amount of effort.

You might have heard of this concept before – called the Pareto Principle, or the 80:20 rule. The Pareto Principle states that roughly 80% of the results come from 20% of the effort for many outcomes.

So once you have optimized your strategy around managing your expenses, savings, and investments, the next step is to automate your strategy.

With automation, you just need to set your plan to save and invest money automatically in the most optimal ways.

By doing the hard work first, then making it automated, you know you won’t forget, get too lazy, or become too busy to do what is good for your financial future. 

Here is where M1 Finance’s Smart Transfer comes in.

What is Smart Transfer for M1 Plus?

Smart Transfer is a feature that comes with M1 Plus.

It optimizes and automates your daily and weekly financial decisions based on your financial objectives down the road, based on a simple “if this, then that” kind of click-and-select logic.

We here at ChooseFI are blown away by how the folks at M1 Finance have been able to take something so complex and make it so simple. 

So impressed that we figured we’d just let them explain what Smart Transfer is in their own words:

“If you’re an M1 Plus member, Smart Transfers let you set threshold-based rules in your various M1 accounts. There is no need to wait for a specific date on the calendar or that reminder on your phone.

For example: you know how much you’ll need in your M1 Spend Plus checking account each month to cover basic living expenses. You’re making regular contributions to your account, but there’s no need to over contribute. So, you set up a Smart Transfer to keep that minimum balance in your M1 Spend Plus checking account and invest the rest.”

Essentially, Smart Transfer optimizes and automates your short-term financial decisions so that you achieve your long-term FI goals in a sustainable, set-it-and-forget-it way.

With that primer on Smart Transfer out of the way, now it’s time to discover how you can use it to become an Uber Optimizer and boost your path to Financial Independence.

We’ll get to that next.  

Ready to Open Your M1 Finance Account? Click here!

Start With Your Annual Expenses

First, you need to figure out what your annual expenses are.

You could use something as simple as a list on paper, a spreadsheet, or even an app like YNAB, but the critical thing is to get a sense of what your life costs over a year.

It is no coincidence that this is also the starting point for figuring out your FI number – it all starts with our expenses.

If you need a refresher on how to do this, you can go ahead and review Day 2 of Brad’s Free 5-Day FI Challenge. If you want a deep dive into the principles of FI, sign up for the free FI101 course put together by the ChooseFI International Foundation.

In order to figure out how much your daily life costs, you have to have two essential pieces of information:

  1. How much cash you know you need every month (annual expense/12).
  2. Your FI number is (approximately 25x of your annual expenses). This would be the target of your total investments.

Now it’s time to set some rules based on your priorities.

Set Up Rules to Control Your Money

Are you looking to max out your Roth or Traditional IRA accounts? Trying to get the highest yield on your emergency fund? Maybe you want to open a taxable investment account?

Or maybe you are looking to pay down debt. Check out the next section on The Loan Consolidator for a deep dive on some nifty debt-crushing tactics.

Regardless of your objectives, you need to set up some rules, so you know your money is being deployed to meet your long-term goals most optimally, automatically.

Now the Next Steps are to: 

  1. Have your recurring income transferred to M1 Spend.
    • This could be your paycheck transferred by your employer (or client if you are a 1099 contractor).
    • Or maybe it is an amount you tell M1 to transfer from your existing bank on a recurring basis.
  2. Remember your monthly expense number from #1 above? Use that as a guide to set up your Smart Transfer options so that there is always an optimal amount of cash in M1 Spend.
    • This amount will earn 1% if you are an M1 Plus member, 0% if you are not.
    • Don’t set the ceiling too high if you have other priorities for your cash. 
  3. Now decide where you want Smart Transfer to sweep every extra dollar to meet your financial goals, such as:
    • Add to your tax-advantaged IRAs. Before moving on to a second rule, you can even tell Smart Transfer only to fund your IRA until it is maxed.
    • Pay down your M1 Borrow account, if you used it to pay down debt,
    • Contribute to a taxable investment account that you configured to be less volatile in case of emergencies.
    • According to your plans, contribute to another taxable investment account that is optimized for the long term.
  4. Should you have an unexpected increase in expenses, or your M1 Spend checking balance drops lower than you’d like, you can also tell Smart Transfer to top it up by automatically.
    • Borrowing from M1 Borrow (at 2%/year for M1 Plus members, 3.5% for regular M1 members).
    • Selling just enough shares from a taxable account of your choice in the most tax-efficient manner.

M1 provides you a total number and further breaks it down into Spend (where your cash lives), Invest (where all your equities are), and Borrow.

One nice side effect of consolidating your cash and investment accounts into M1 Finance is that it gets closer to becoming an informal dashboard for your FI number. 

As of early 2022, M1 won’t reflect other assets like real estate, HSAs, and employer-sponsored retirement plans (unless rolled over into an IRA with M1), but for a rough estimate of your progress to FI, the dashboard provided by FI is a handy reference. 

Next Steps

As stated before, we are not financial experts, and the information in this article is for educational purposes only. It should NOT be construed as financial advice.

That said, here are some next steps if you want to be the Uber Optimizer using M1 Smart Transfer. 

  • Activate M1 Plus to start using the Smart Transfer feature. It’s free if you are new to M1.
  • Figure out your expenses and what your monthly cost of living is. Review Day 2 of Brad’s Free 5-Day FI Challenge if you need to.
  • Have your paycheck transferred by your employer (or client if you are a 1099 contractor) to M1 Spend.
  • Set your M1 Smart Transfer options for “Goldilocks Mode” – a range of cash to hold that brackets your estimated monthly expenses.
  • Let Smart Transfer sweep every extra dollar to meet your financial goals, such as:
    • Add to your tax-advantaged IRAs
    • Pay down your M1 Borrow account (which you used to pay down debt higher than 2%)
    • Contribute to a taxable investment account for emergencies
  • Should you have an unexpected increase in expenses and your M1 Spend checking balance drops lower than you’d like, Smart Transfer will automatically top it up by borrowing from M1 Borrow at 2% or selling some shares in a taxable account. You decide. 

Ready to Open Your M1 Finance Account? Click here!

The Loan Consolidator: What Crushing Debt Looks Like

Some of you with sizable loans might choose to stay out of the stock market until your loans are paid off.

That makes sense – you do what is within your comfort zone.

But what if there was a way to pay down debt and still be invested in the market?

That’s where M1 Borrow comes in.

It lets you borrow up to a third of your assets at 3.5% while keeping your portfolio intact. You can then use that money to pay off other debt, presumably loans with a much higher interest rate.

But to really win at the debt-crushing game, you need to sign up for M1 Plus, which brings the rate of M1 Borrow down to 2%. 

Pair M1 Borrow with Debt Repayment Strategies

There are generally two strategies people take when it comes to crushing debt.

  1. The Debt Avalanche: The one that makes the most mathematical sense is the Debt Avalanche because you end up paying the least in interest over the medium to long term. Here’s how it works:
    • Make sure you have enough to cover your living expenses and a 6-month Emergency Fund.
    • After that, pay just the minimum monthly amount on all your loans to avoid added interest, penalties, and fees.
    • Then plow the rest of your remaining funds into the loan with the highest interest first. When that is paid off, start on the next highest-cost loan.
  2. The Debt Snowball: This approach works for many people who want to focus on small, quick wins first. You may pay more in interest, but sometimes you just want to feel a sense of agency and traction, and paying down smaller debts first could give you the motivation to keep going. Here’s how it works:
    • Make sure you have enough to cover your living expenses and a 6-month Emergency Fund.
    • After that, pay just the minimum monthly amount on all your loans to avoid added interest, penalties, and fees.
    • Then put the rest of your available free cash into the smallest loan to pay it off in full. When that is paid down, start on the following loan. 

M1 Borrow works exceptionally well with the Debt Avalanche method, helping you to pay down the high-interest loans in less time, giving you the mathematical gain of less interest paid, as well as the psychological win of agency and traction. Here’s how:

  1. Freeing up your Emergency Fund: You could potentially use M1 Borrow as the alternate emergency fund and free up your existing emergency fund to pay down your loans now.
    • Because your emergency fund is likely to be 6-9 months of living expenses, this would let you target both the most significant and priciest loans, saving you money and the motivation to keep going!
    • Note: You do not actually have to take a loan through M1 Borrow; you just need to know the emergency funds are there if needed, giving you the peace of mind to keep paying down debt every month. 
  2. Keeping The Emergency Fund in Cash: If you prefer to keep your emergency fund in cash, leave it in M1 Spend to earn 1%. Then, go ahead and take a loan from M1 Borrow (it should be at 2% as of Feb 2022), then use the funds to pay down the loan with the highest interest rate. Depending on the size of your portfolio, this might just be enough to pay down a large loan as well.   

Some Important Considerations 

Here are a few extra things to note in your loan consolidation strategy:

Always: Crush debt with variable rates that are 5% or higher, such as credit card debt, auto loan, personal loans, and other consumer debt. M1 Borrow beats these kinds of loans every time. 

Avoid: If you are a homeowner and have a 15-30 year fixed mortgage and a sub-5% rate, see if you can refinance it down even more by 1-2% instead of taking a loan from M1 Borrow to pay off some of the mortgages. M1 Borrow has a variable rate, so there is a chance it will go up over the next 15-30 years.

Never: If you are in the FI community and trying to crush your debt, avoid borrowing from M1 Borrow to buy MORE equities. You can consider that after paying down all the debt with “hair on fire” interest rates.

Repay: Unlike other loans, which may have a payment schedule, you get to choose how much and when to pay down your debt. It’s your decision, and it is fully flexible. But once you have met your financial objectives for the year, it is generally a good idea to pay down debt when you can.

Now that we’ve looked at how M1 Borrow can be used to crush your debt, we’re going to discuss some of its extra perks next.   

Ready to Open Your M1 Finance Account? Click here!

Extra Perks of M1 Borrow

While the low M1 Borrow interest rate of 2% for M1 Plus members is the main reason we use it, there are a few extra perks that we think you will like as well.

Here are a few of them.  

More Straightforward and Cheaper Than Juggling Credit Card Balance Transfers

Some people use a strategy of applying for 0% Balance Transfer Credit Cards like the Citi® Double Cash Card and U.S. Bank Visa® Platinum Card, and transferring the balance from card to card as they chip away at paying down the debt.

While the 0% APR on the balance transfer for 12-18 months is handy, this can be a complex endeavor, and there is usually a balance transfer fee of around 3%. They would have to do the same thing again when the 0% APR window is over to hang on to this rate. 

With M1 Plus, the rate you get is 2% a year, and you decide how long you want to keep that loan open.

Easy Access to a Hassle-Free Emergency Fund 

What if you do not have any more consumer debt to crush?

You could do what Jonathan does and use M1 Borrow as a standby, no-hassle, zero-red tape, on-demand emergency fund.

It’s not something you’d have to borrow against unless needed; you need to know the funds are there if you ever need them.

Similarly, instead of building a 6–9-month emergency fund before investing, you could invest and grow your portfolio now. As your portfolio grows through your contributions (and market appreciation), the amount you could potentially borrow increases, and at some point, it would be large enough to cover the 6-9 months you need.

Credit Score Perk: M1 Borrow Loans Not Reported to Credit Bureaus

Because a loan via M1 Borrow is secured against your portfolio, there is no credit check, no payment plan, and no reporting to the credit agencies. This is one reason why getting a loan of up to 35% on a $10,000 minimum portfolio can be done on the phone, in under a minute, with zero paperwork or credit checks.  

But here is an even more powerful reason to use M1 Borrow to pay down or pay off higher-interest debt elsewhere — you may see your credit score go up.

What would happen is that it would appear that you paid down a large part of your loan, which improves your credit score. In truth, however, you are still paying for the same amount, except you are doing it in M1 Borrow, at just 2% if you have M1 Plus (or 3.5% if you do not).

Most people should NOT be giving up a 15 or 30-year low-rate mortgage (2-3%) for a variable rate, which M1 Borrow is.

But, if you are stuck in a high-interest mortgage and cannot get refinanced for any reason, this might be a way to lower your mortgage interest and use that interest paid to reduce your overall tax bill.

Consolidation Into the M1 Finance Eco-System Makes Sense

If you have equities in taxable accounts scattered across different brokerage firms, it might make sense to consolidate and transfer those holdings to M1.

The more you have in the M1 Finance eco-system, the more funds you have at your disposal, which you can deploy to pay down higher-cost interest loans or be held in reserve as an alternate emergency fund.

Plus, M1 Finance has a convenient dashboard that shows the overall value of your holdings and breaks it down into Spend (checking account), Invest (your equities), and Borrow (your loans), so you have an easy way to track your money plan.

Now that we have covered all the ways that M1 Borrow is the Loan Consolidator’s best friend, it’s time to review a few of the risks.

Ready to Open Your M1 Finance Account? Click here!

Some Risks to Consider

Now that we’ve covered all the great ways that M1 Borrow can help with your path to Financial Independence, it is time to review two risks associated with margin loans in general.  

These are not risks explicitly associated with M1 Finance – the risk exists with every brokerage house that offers a margin loan to its retail customers.

If anything, M1 has taken steps to buffer us from some of the risks, but everyone who uses a margin loan should familiarize themselves with them. 

Margin or Maintenance Calls

When approved for a home mortgage, your lender uses your home as collateral. Similarly, when you borrow against your equities, that money is provided by using your portfolio as collateral.

Unlike a home mortgage, however, if the value of your portfolio drops too low, you may be required to pay down some of the loans – or sell off some shares – to maintain the loan-to-account value ratio. 

This is called maintenance or a margin call and is something that most brokerage companies do when they lend you money secured against your equities. 

Because M1 Finance will not lend you more than 35% of your account value, a large buffer protects you from a maintenance call.

Still, it is something to be aware of.

Variable Rates

Even though M1 Borrow has competitive rates, these rates are variable and will change over the medium to long term.

In early 2022, the rates for M1 Borrow are at 2% for M1 Plus members and 3.5% for non-members. While it is likely that M1 rates will continue to be much lower than other variable rates like credit cards, you also need to bear this in mind.

If you have a great deal like a 3.5% on a 15-year fixed mortgage, you should hold on to that and reserve M1 Borrow to pay down high-interest loans that also have variable rates.    

M1 Borrow Is Still a Useful Option for Most

If you have high-interest consumer debt chipping away at your savings rate and slowing you down on your FI journey, M1 Borrow can be a helpful tool to get ahead of your liabilities and well worth doing.

Ready to Open Your M1 Finance Account? Click here!

Next Steps

As previously stated, the information we put together in this article is for educational purposes only and should NOT be construed as financial advice.

That said, here are some next steps if the Loan Consolidator is a use case that resonates with you.

  • List out all the debts you are still liable for that are more than 3-4%. 
    • If you use the debt avalanche method to pay down debts, flag the loans with the highest interest rate.
    • If you use the debt snowball approach, earmark the smaller loans to pay off.
  • Make sure you have at least one account with at least $10,000 worth of equities. That makes the M1 Borrow feature available for everyone at an annual rate of 3.5%.
  • If you are new to M1, you get to try out M1 Plus for free for a year. Activate it to bring your borrowing cost down to 2% a year.
    • If you are an existing M1 user and don’t have the free M1 Plus trial offer, it might be worth paying the $125 for M1 Plus. 
    • For example: if you have a loan of $5,000 at 4.5% a year, you will pay $225 of interest over 12 months. That same loan at 2% would only cost you $100, saving you $125. That would cover the cost of M1 Plus.
  • Borrow the amounts you need from M1 Borrow and send to your M1 Spend Checking Account.
    • If your loan servicer accepts payments with a debit card, you could get 1% cashback using your M1 Debit Card (make sure to request it ASAP). 
    • If your loan servicer does not accept payments by debit card, just transfer the funds from your M1 Spend to your linked external bank. From there, repay the loan like you usually do.  
  • Consider transferring your portfolio from other brokerages to M1.
    • Because of the conservative nature of M1 Borrow, you can only borrow up to 35% of the value of your equities.
    • By consolidating your assets under M1, you increase the total borrowable amount to pay off high-interest debt elsewhere.
    • Side benefit: having all your equities in one place makes it easier is much neater!

Ready to Open Your M1 Finance Account? Click here!

All right! We did it! We’re at the end of this article.

Which use case of M1 Plus resonated with you the most? Was it:

  1. The Cash Stasher? 1% APY a year is nothing to sneeze at when the best you can do at many other online banks is 0.5% or less.
  2. The Uber Optimizer? Optimizing and automating your saving, investing, and loan payment is a surefire way for long-term success. If we could optimize then automate our diet and exercise, think how much more fit we could all be! While that is a pipedream, this set-it-and-forget-it path to FI is something that is well within reach with M1 Smart Transfer.
  3. The Loan Consolidator? If you have more than 2% debt and have enough assets in the M1 Eco-system, you could effectively save $1000s just by borrowing up to a third of the value of your help. 

Or, if you’re like us, maybe all three use cases appeal to you! If so, you might discover why M1 Finance calls itself the “Finance Super App.”

The Bottom Line

  1. Decide which of the three use cases most meet your needs.
  2. Activate your free M1 Plus account if you are new to M1. If you are already an M1 customer, do that math to see if it would be worth paying the $125/year for it.
    • If you save $12,500 in M1 Spend, you get a 1% APY, or $125. This is your breakeven spot. If you have your cash in a place that earns, say. 0.5%, your breakeven for M1 Plus is keeping $18,500 in M1 Spend.
    • If you use M1 Borrow’s lower 2% for M1 Plus members, you could be getting M1 Plus for free. For instance, if you had a $5,000 loan costing you 4.5%, you would be breaking even if you paid for M1 Plus and borrowed $5,000 from M1 Borrow at 2%. Note: you would have to have a portfolio of around $15,000 to borrow $5000.
  3. Once you have tested out the use case of your choice, consider trying out at least one other since you would presumably already be an M1 Plus member! 

Additional M1 Finance Resources:

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