For those of you who don’t know, M1 Finance is a brokerage that offers high customization and automation to help you build your ideal portfolio that can meet just about any preference or requirements you may have. On top of that, it has low fees and minimum balance requirements.
How Does M1 Finance Work?
You can create and design your own portfolio – made up of anything from index funds to individual stocks. Alternatively, if you are more of a beginner, you can use their premade portfolios based on your current goals. What separates M1 Finance from its competitors is that M1 lets you deal in fractional shares and it gives you immense control over your own portfolio. Overall, it’s a great brokerage that has the flexibility to give just about everyone (except for day traders) the flexibility they need to hit any goal.
Pros
- You can do micro-investments
- Incredible flexibility
- Dozens of premade portfolios to use
- Nice interface (via browser)
- Easy to read and understand charts and portfolio details
- You can also include individual stocks in your portfolio (not limited to just index funds and ETFs)
- M1 Finance is open and honest about how it makes money – no management fee (except for a specific fund’s own expense ratio)
Cons
- There can be a significant delay between placing a transaction and it going through, as well as limits on how often you can do it (M1’s model is definitely more centered on a “set it and forget it” mindset, rather than a model centered on actively trading)
- There is a minimum balance ($100)
- You need to already know what your goal is – they don’t really have advisory services to help you set specific ones
- In my opinion, it has a clunky interface (via phone app)
Know Your Goals And Priorities
One of the drawbacks for a lot of people is that M1 Finance doesn’t really offer advisory services. That’s not really the point of M1 Finance though. M1 is a great platform to build your portfolio and automate it – and it’s good for beginners as well as advanced investors. If you’re brand new to investing, check out my guide here to get yourself set up TODAY. If you’re more experienced, you wouldn’t need the advisory services anyway.
At the end of the day, when you use M1 Finance (or any brokerage) you should have a goal in mind. Is it retirement in 10 years? 40 years? Are you just augmenting your total investment portfolio? Do you want to build cash flow by creating a portfolio with high dividend yields? Are you looking for a portfolio of growth stocks? Whatever you want, it’s important to know it going in. As long as you have your goal set, M1 Finance can help you get there – either by using a premade portfolio or building your own.
Additional Services
I have a feeling the services M1 Finance offers will only grow with time. Right now, in addition to the core brokerage with portfolios and automated micro investments, they offer a few other services.
M1 Plus works like a subscription at $125 per year. You earn 1% interest on your cash balance and it drops the interest rates on loans by a large amount. In order for this to be worth it, you’d probably need to use more of their services (specifically with loans) and carry a cash balance – or get a discount. This isn’t for me, but I can see the use. M1 Plus subscribers also have access to Smart Transfers, which lets you set it up so that once you hit a certain threshold on your cash holdings, M1 Finance transfers any additional cash into your investment portfolio.
M1 Spend basically let’s you use M1 Finance as a bank account with a debit card. On top of that, using it also gives you some cash back. Depending on what your current banking and credit card cash back (credit cards can actually be extremely useful if you know what you are doing) options are, this could be an interesting service.
M1 Borrow is a loan service. Basically, they have low rates and borrow against your investments (in the M1 Finance account). If you need a loan, it isn’t a bad option – but as always I warn against going into unnecessary debt. If you need a loan, make sure you research all of your options.
App Vs Website
Overall, I like the website and find it fairly intuitive and nice to use, but the app seems a bit clunky to me. The interface being nice or not won’t deter me from a brokerage, but it is definitely something to take note of if that is important to you. Of course, that is just my opinion and yours may vary – I generally prefer desktop and browser applications to their mobile counterparts.
Customer Service
I’m going to be candid – I’ve had next to no experience with their customer service. The experience I have had was pleasant, and most people report a positive experience it seems. However, I want to reiterate that M1 Finance doesn’t really offer advisory services.
This means that their customer service probably won’t be equipped to help you design a portfolio (they might just send you to one of their premade ones). With that being said, they do have excellent support documents on their website with detailed instructions on how to use various features if you have any questions or misunderstandings.
How Do They Make Money?
M1 Finances does NOT charge management or trading fees on deposits and withdrawals. Of course, there may be regulatory fees, expense ratios (which depends on the fund you select), and additional service fees. If that leaves you scratching your head at how M1 Finance actually makes money, here is how they do it:
- They lend out the cash balance of users (generally to banks) and earn interest from it – this is how most banks make money from checking and savings accounts (unless they charge outlandish service fees, of course).
- They’ll lend out securities on a short-term basis (think about short selling).
- They earn interest on loans through their M1 Borrow service.
- With M1 Spend they earn a small portion of every transaction done through them (as most debit/credit cards do).
- The M1 Plus subscription, which is pretty self-explanatory.
For more information on these, and to see the full list and explanation, check out M1 Finance’s article on it https://www.m1finance.com/blog/how-m1-makes-money/. It is from 2019, so a few of the numbers may be out of date, but the core concepts and practices seem to be the same.
How Do You Know If M1 Finance Is Right For You?
That’s a bit of a personal question and may depend on your goals surrounding investments or trading. A while ago, I did a comparison between M1 Finance and Robinhood. I’m generally a fan of M1 Finance, since it is great for most investors (whether they are beginners or advanced) and they have a great selection of index funds, ETFs, and stocks. However, as I mentioned in my comparison article, M1 Finance is not the best option for highly active traders.
How Do I Set Up An Cccount?
I spoke about this in my article on how to get started investing, and the process is pretty straightforward:
- Follow this link to get started
- Sign up quickly and set up an email and password
- You’ll be prompted to create the type of account of you want (standard, IRA, etc.)
- Link your bank to M1 Finance so that you can set up deposits – you can set up automatic deposits too if you want!
- Set up a portfolio with the index funds and ETFs of your choosing – M1 Finance makes it easy to adopt a “set it and forget it” mindset, as your deposits will automatically be distributed to the portfolio
How To Set Up A Portfolio
So, M1 Finance splits up your portfolio into “pies” which you can manage yourself – or use premade ones. If you’re brand new to investing, I recommend using the premade ones for now. If you are more experienced and want to be more hands-on, the process of building your pie is pretty simple.
- Navigate to your pie and select “manage pie”
- Select the edit option
- There should be some option to add funds or stocks, denoted by a “+” icon or an “add” button depending on whether you’re in the app or browser – click it
- Search for the index fund, ETF, or stock you want to add to it
- Add it to your pie and specify what percent of your contributions you want allocated to it
It’s as easy as that!
Conclusion
Whether or not M1 Finance is for you, I hope you found the information in this article useful. If you have any questions about M1 Finance, or want to add something to what I’ve mentioned, leave a comment below! For more content like this, and a free budgeting template and financial goals worksheet, be sure to sign up for the Bitter to Richer newsletter.
