Account Minimum: $100 – Fees: $0 – Best for: Saving
Let’s get something out of the way. M1 Finance is not a stock trading app. When you search for “alternatives to Robinhood,” M1 Finance is one of the first things to show up. They aren’t even close to the same thing. If you don’t know why you’d be looking for alternatives to Robinhood, see here.
If you’re new to investing, it can be scary. There are a lot of people who will gladly take your money. Who is the right person? Or, should I even be giving my money to a person? If you find yourself asking these questions, this M1 Finance Review is well worth looking into.
What is M1 Finance?
M1 Finance is a mobile (and desktop) investing application founded by Brian Barnes in 2015. It is a robo-advisor/brokerage investment firm hybrid that allows you to automatically save and invest based on preferences you set. A financial advisor will charge you anywhere from 0.5% to 2.0% for this service, but with M1 Finance it’s free.
M1 Simplifies simplifies the process of long-term saving, whether you are saving up to buy a house or planning for retirement. They use the Modern Portfolio Theory to guide their investments.
Choose your pie.
Setting up M1 Finance is easy. They require no initial deposit and make selecting a portfolio easy. All you have to do is choose your pie.
What’s a pie?
Pumpkin pie, apple pie, pecan pie, cherry pie, financial pie? If you’re not familiar with a pie graph, you add up a bunch of parts of the circle (pieces of the pie) to make a full circle. How big each piece is represents what percentage of the pie it is. So five equal slices of pie would be 20% each.
Each investment you hold is a “slice.” You set a percentage weight for each slice. Put money in your pie and M1 finance automatically funds each piece of the piece. Slices that outperform their target weight will grow, while underperforming slices will shrink. Over time the piece will balance itself out. You can easily remove or add slices at any time.
Here are 5 Reasons we Love M1 Finance.
- It’s (almost) Free – There’s not such thing as a free lunch. However M1 Finance comes pretty close to being free, and has no fees compared to products such as Wealthfront, Betterment and other robo-advisors. M1 Finance charges the following, which is completely reasonable compared to the industry.
- SEC (Securities Exchange Commission) Fee = total price of transaction x 20.70 / 1,000,000
- TAF (Trading Activity Fee) Fee = shares sold x 0.0001119 with a maximum of $5.95
- Automatic Rebalancing – M1 intelligently takes money from every deposit to ensure your portfolio stays on track. This means you put cash in and M1 does all of the complicated number crunching and figures out what money needs to go where.
- Desktop & Mobile – Unlike some financial apps currently on the market (looking at you Robinhood), M1 Finance has a robust desktop and mobile application that makes it easy to look at your funds on the go or in your home office.
- Fractional Shares – Sometimes when buying stocks you have to buy the whole stock, even if it costs thousands of dollars. With M1 Finance you can invest 100% of your money because they let you buy part of a stock. This way your money is never sitting there waiting to be invested.
- Rollovers – If you have 401(k) or 403(b) from another organization, M1 Finance makes it easy for you to take these funds and put them in your account. Simply follow the instructions on their website and you should be good to go.
You Can Borrow with M1 Finance.
This whole time you’ve been asking yourself, “but how do they make money?” Well here it is, M1 Finance lets you borrow up to 35% percent of your portfolio value. Given that their interest rate is only 4.25% it’s a pretty sweet deal, especially if you’re struggling to pay off credit card debt, student loans or a HELOC loan.
You do need to have $10,000 in your account in order to qualify for these loans, and the interest rate changes monthly, but this is still a really good deal for people with high interest rates.
We do not advocate for borrowing against your own portfolio on this app, given that it is not an app built for high-frequency stock trading.
What is M1 Finance Plus?
M1 Finance is free, but they offer a paid version for the more serious investors. It has everything a regular account has, plus a few extra features
Let’s break down what Plus offers:
- 1.5% APY Checking – You get a checking account that has a 1.5% APY. This interest makes money as you spend it. Most banks have less than 0.1% APY, so this is a huge plus.
- 1% Cash Back – For every purchase made with your M1 Vise Debit card you get 1% cash back. There are a lot of comparable credit card programs out there, but this is less common for a debit card.
- More Investing Options – In order to be able to do more than just save, M1 Finance Plus offers users a second trading window. That way they are able to keep their savings safe while exposing themselves to higher risk investments in a second area.
- Discounts on Borrowing – As if the 4.25% interest loan wasn’t enough, M1 Finance Plus gets you an additional 0.25% off, which brings your interest to only 4.00%.
- Integrates with Other Apps – One of the worst parts about digital financial products is that they often don’t integrate with tax software. Lucky for us M1 Finance integrates seamlessly with TurboTax & H&R Block.
The other “perk” M1 Finance touts is their $75 for your first year incentive. It’s $50 cheaper, but it’s also a tactic a lot of subscription companies use to get you hooked on their product.
Where M1 Finance Lacks
- No Tax Loss Harvesting – Tax loss harvesting is selling something that experienced a loss. By realizing this loss, your taxes won’t be as bad. Wealthfront does this automatically, but M1 Finance currently does now offer this feature.
- Investment Vehicle Restrictions – M1 Finance has a limited set of investment vehicles. You can’t have a 401(k), 529, CDs amongst a few others. This isn’t to say it’s bad, rather it doesn’t have everything other investment products do.
- US Only – For any readers outside of the US, M1 Finance doesn’t work for you. The product is currently US only, however they may expand in the future.
- Not Built for Trading – While M1 Finance is a great place to put and hold your money, it is not the place to trade stocks. This app caters to people who want to passively invest. There are no robust solutions for high-frequency stock traders.
M1 Finance Review: The Bottom Line
Compared to other investing apps currently on the market. M1 Finance is hard to beat when it comes to fees. While they may not have a lot of the robust features that tell your story like Wealthfront or the stock trading options of Roobinhood, it is going to save you a LOT of money down the road. Definitely would recommend.