Decades ago, most people who needed help managing their money and investments hired a real-life financial advisor who sat down with them in person to give tailored advice.
While there’s nothing wrong with using a financial advisor, times have changed and so have consumer’s expectations and goals.
These days, more and more people are turning to robo-advisors and online brokerage firms who can very often help their clients achieve better results with lower fees.
With M1 Finance, however, investors don’t have to pay a flat ongoing fee for account management or investment advice. In fact, M1 Finance doesn’t charge any fees or commissions for its services.
If you’re in the market for a robo-advisor but want the freedom to tinker with your investments or choose among pre-chosen options without a bunch of fees, you’ll want to explore M1 Finance and understand the way their investment “pies” work.
Keep reading to learn more about this unique investing platform, who it’s good for, and the best ways to use it to your advantage.
M1 Finance At-A-Glance
M1 Finance is the best of both worlds as far as investment advising is concerned, and the platform is built on several standout features.
- Choose your own stocks and funds. M1 Finance allows you to customize your investments to build a “pie” that is expertly tailored to your needs.
- Choose among M1 Finance Expert Pies. M1 Finance also offers their own curated investment pies crafted to meet specific goals or align with a specific risk tolerance.
- Multiple accounts offered. M1 Finance lets you open an individual or joint taxable account. You can also set up a trust on behalf of an individual or group or invest for retirement with a traditional IRA, Roth IRA, or SEP IRA.
- Invest in stocks and ETFs. M1 Finance lets you build your “pie” with any combination of stocks or ETFs traded on major exchanges such as NYSE, NASDAQ, or BATS.
- Invest in fractional shares. M1 Finance invests your money in fractional shares to ensure every penny of your portfolio is working on your behalf at all times.
- Automate your investments. Set up an automatic investing schedule so you can sit back and watch your portfolio grow on its own.
- Automatic rebalancing and tax efficiency M1 Finance works diligently to keep your pie properly allocated at all times. They also have built-in mechanisms that ensure your tax load is as low as possible.
- Borrow money. While M1 Finance focuses most of its efforts on its advising arm, the firm also lets you borrow money against your portfolio with rates as low as 4% APR.
- No minimum balance. You can open an account with any amount, but you do need at least $100 to start investing with a taxable account. Retirement accounts require a minimum balance of $500 to get started.
- No fees. M1 Finance doesn’t charge any broker fees or commissions.
How M1 Finance Works
As I mentioned briefly already, M1 Finance offers investors the opportunity to choose from pre-mixed investment options or create their own. They do this by asking you to choose among or create investment “pies” that include your chosen investments and corresponding allocations.
To get started with M1 Finance, all you need to do is open an M1 Finance account. Then, select the stocks or ETFs of your choosing and add them to your pie. Of course, you can also choose among Expert Pies that includes curated investments chosen by M1 Finance staff.
Once your pie is set up, you’ll set the target weight of each slice — or the percentage of each stock or ETF you want to allocate to your portfolio. After that, you will simply fund your pie and allow M1 Finance to move your funds into the investments you’ve chosen at the percentages you agreed to.
As some slices of your pie grow larger and others shrink due to losses, M1 Finance will automatically rebalance your portfolio for you.
You also have the option to add, edit, or remove slices at any time. Also note that you can have multiple pies set up through M1 Finance, including customized pies and Expert Pies.
In summary, M1 Finance aims to help you save time and effort by offering a set-it-and-forget-it portfolio management software that manages your chosen investments and rebalances automatically on your behalf. Setting up an account is easy, and it can be done entirely online.
The best part is, there are no required minimums to open an account — only a $100 minimum to begin investing your funds in a taxable account. M1 Finance also refrains from charging any fees, including broker fees or commissions.
Who Is It Best For?
While M1 Finance could work for anyone who has money to invest and some time to open an account and get started, it will still work better for some consumers than others. The ideal user of M1 Finance is someone who:
- Wants to invest in ETFs and individual stocks while having their portfolio automatically rebalanced on their behalf
- Doesn’t want to pay annual fees or commissions to their robo-advisor
- Likes the idea of choosing their own investments for their pie or choosing among Expert Pies already set up to meet certain risk profiles
- Doesn’t need a lot of hand-holding to grow their portfolio and choose investment options
- Wants to set up automatic contributions so their portfolio can grow on its own
Pros and Cons
M1 Finance offers a unique approach to investing that we haven’t seen elsewhere. However, there are some important advantages and disadvantages to consider before you choose M1 Finance over another robo-advisor.
Advantages of using M1 Finance:
- It’s free. One of the biggest advantages of M1 Finance over some of its competitors is the fact it’s free to use. M1 Finance doesn’t charge any broker fees or commissions to use the service or gain access to their features and tools.
- Low barrier to entry. While M1 Finances requires at least $100 in taxable accounts and $500 in retirement accounts to start investing, you can open an account with any amount.
- Tailor your investments to your needs — or not. While M1 Finance allows you to choose from individual stocks and ETFs to create each of your pies, you can also choose among Expert Pies that are formulated by M1 Finance staff for various goals.
- Automatic rebalancing. Once your pies are set up and you begin funding them, M1 Finance will automatically rebalance on your behalf.
- Invest for retirement or other goals. M1 Finance allows you to set up a taxable investing account or save for retirement with a traditional IRA, Roth IRA, or SEP IRA.
- Fractional shares help your money work for you. M1 Finance invests in fractional shares instead of leaving excess funds idle. This strategy helps you maximize your returns over time.
Disadvantages of Using M1 Finance:
- You can’t use M1 Finance for every type of retirement account. While M1 Finance does let you open an account for your SEP IRA, Roth IRA, or traditional IRA, you can’t use the service to oversee workplace retirement accounts like a 401(k).
- Limited investment options. M1 Finance lets you choose from ETFs and stocks traded on major exchanges, but they don’t let you choose among mutual funds or any other investments.
- No tax-loss harvesting. M1 Finance doesn’t sell securities that have experienced a loss to offset taxes on gains and income. However, they do offer a service called “tax minimization” that works similarly.
- Few tools. M1 Finance doesn’t offer as many retirement tools as some of their competitors. For example, they don’t offer a tool that allows you to see if you’re on track to achieving your retirement and income goals.
Should You Sign Up for M1 Finance?
If you’re on the fence about signing up for M1 Finance, it probably helps to remember that this service is free to use.
You don’t have to make an annual contribution to invest in their pies or take advantage of services like automatic rebalancing, so you can try M1 Finance without a big upfront investment or commitment.
And since you don’t need a huge balance to open an account and start investing, M1 Finance can work for individuals at all income levels.
On a personal note, I really like the way M1 Finance lets you create your own investment pies or choose among expertly curated pies offered through the site. The whole “pie” visual makes it easy to understand how your investments are allocated in terms of their percentage, or “slice.”
We also love that M1 Finance automatically rebalances your pie for you so that you are always aligned with your ideal asset allocation.
Finally, we appreciate the fact that M1 Finance works for taxable investment accounts as well as some retirement accounts. With that being said, M1 Finance probably isn’t for everyone.
If you’re someone who needs tailored financial advice or wants to be able to speak to an investment advisor at any time, for example, you may be better off with a robo-advisor that offers comprehensive help via live chat or the phone or a real-life financial advisor.
Also note that, since M1 Finance only lets you invest in stocks and ETFs, this service isn’t ideal for individuals who hope to invest in a broad range of investment options.
Only you can decide whether to give M1 Finance a try or go with a different robo-advisor. If you’re curious how M1 Finance works or the process involved in selecting stocks and ETFs for your pie, open a free account and give it a try.