M1 Finance Review: Pros, Cons, and How It Compares to Other Investing Apps
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Investing is an essential part of planning for your financial future.
But finding money to set aside for investing is difficult for many people. And even if you do have money to invest, it’s often hard to know what to do with your money, where to invest it, and what platform to use.
Robo advisors aim to help beginner investors start investing their money by managing their accounts for them. Robo advisors are even good for more experienced investors who still want a hands-off approach to their investing.
Platforms like M1 Finance combine robo investing with hands-on investing, giving investors the opportunity to automate their portfolios while still selecting some of their own investments.
But what else do you need to know about M1 Finance?
What is M1 Finance?
M1 Finance is a low-cost online investment platform, offering both robo advisor and self-directed investing options. They’re a good choice for people who want the benefits of a robo advisor but still want some autonomy in picking individual stocks or investing in fractional shares. There’s no minimum to open an account, no management account fee, and their banking products are FDIC-insured up to $250,000.
M1 Finance is a member of both FINRA (Financial Industry Regulatory Authority) and SIPC (Securities Investor Protection Corporation), has won a number of awards for its services, and has been featured in publications including The Wall Street Journal, Business Insider, and TechCrunch.
They have an average 4.5 of 5-star rating from both Apple and Android app users. While an overwhelming number of users are happy with the app, the investment options, and the company, common complaints include poor usability (ex., bugs, login issues), unhelpful customer service, and hidden fees.
M1 Finance Pros and Cons
Like most investing platforms, M1 Finance comes with advantages and disadvantages. Make sure you carefully weigh their pros and cons against other apps like Robinhood or Wealthfront before you open an account.
- $0 minimum to open an account
- No management, commission, or trading fees
- Allows investing in fractional shares
- Offers investing and banking options
- Paid account option, M1 Plus, that offers more services and choices
- No tax-loss harvesting
- Can’t buy mutual funds, only ETFs and stocks
- Can’t consolidate other accounts (ex., employer-sponsored 401(k)s)
- Accounts that fall below $20 with no trading for 90 days are charged a fee
- No online chat support
How Does M1 Finance Work?
Before you open an account with M1 Finance, it’s important to know what services they offer, what information you need to provide, and how you’ll fund your investment account.
Opening an account with M1 Finance is simple. All you need to do is visit the website to create a login using your email address and a password.
From there, you see the account dashboard where you’ll provide additional personal information like your address, income, and other assets (as required by the SEC). You’ll also set your investing preferences including your risk tolerance and investing goals, and link a bank account that’s used for both authorized deposits and withdrawals.
There’s no cost to open a basic account with M1 Finance, and you don’t have to make a deposit immediately upon opening the account. The company gives you time to explore the app and make some choices about your investment portfolio before you start investing.
The cost to open an M1 Plus account, their premium service, is $125 a year. However, they are currently running a promotion where new M1 Plus users can get their first year of service for only $25.
M1 Finance allows its users to invest in stocks, ETFs (exchange-traded funds), and fractional shares of companies. In addition to individual taxable brokerage account and IRAs, you can also establish a joint account with a spouse or relative and you can open an M1 Trust account.
M1 Finance doesn’t let you invest in mutual funds, and you can’t consolidate any outside investment accounts with your M1 Finance account. That means if you have an employer-sponsored retirement plan like a 401(k), you won’t be able to roll it into your M1 Investing portfolio. You’ll need to manage both accounts separately.
The basis of M1 Finance’s investing platform is what they refer to as “Pies”. This is a pie chart that represents all of your selected investments, and each “slice” represents the weight, or percentage, of that investment in your overall portfolio. As you fund your pies, the money is distributed according to the percentage you set.
For example, if you have Amazon stock that represents 50% of your pie and you deposit $100 into your account, $50 will go to the Amazon slice. Since you determine the weight of each slice, you can change the percentages at any point.
When you sign up, M1 Finance will recommend a pie for you based on your preferences and risk tolerance, but you don’t have to use it. You can create your own custom pie, use another expert-selected one, or combine them into your ideal portfolio. You can also add or remove investments whenever you feel like it.
Investing in your Pies is easy thanks to automation. You can set up automatic transfers from your linked bank account on any schedule that works for you (ex., daily, weekly, monthly), and the robo investing aspect of M1 Finance will handle the rest, including rebalancing, or realigning the weight of the assets in your portfolio.
M1 Finance uses dynamic rebalancing, using the money that you deposit to rebalance automatically, saving you from the effort of calculating how you should allocate new money.
Withdrawals and taxes
M1 Finance doesn’t allow tax-loss harvesting, a strategy that helps investors minimize the amount of capital gains taxes they pay on their investment returns by selling certain securities at a loss. Most other robo advisors do use this strategy, but M1 Finances uses “tax minimization” instead.
If you want to withdraw money from your portfolio, you’ll need to sell off some of your investments, which M1 can do for you once you request and authorize it. Their algorithm will select the ones to sell based on your portfolio targets, and they prioritize, according to their site:
- Losses that offset future gains
- Lots that result in long-term gains
- Lots that result in short-term gains
After the sale, the money is transferred into your bank account, which can take up to five days.
M1 Investing offers one trading window for basic account holders, beginning at 10 a.m. EST, but M1 Plus account holders are offered an additional afternoon trading window that starts at 3 p.m. EST.
To use both windows, you’ll need at least $25,000 in your account; if you’re an M1 Plus member with less than $25,000, you can choose one or other.
With M1 Borrow, you can take out a loan of up to 35% of your portfolio’s value, which you can use for a number of reasons including paying down your debt, paying for a large expense like a vacation or wedding, or covering a major unplanned expense if your emergency fund isn’t enough.
Interest rates on these loans are either 3.5% if you have a basic account and 2% if you’re an M1 Plus member, but you must have at least $10,000 in your account to qualify. This is substantially lower than using a credit card or taking out a traditional car or home equity line of credit, especially if you have a significant amount of debt you want to consolidate.
However, M1 Finance does note these risks when borrowing against your portfolio:
- The base rate is variable and fluctuates with the Federal Funds Rate
- If your portfolio value declines, they may call you to discuss selling off some of your investments to cover the loan
- If you use proceeds from an M1 Borrow loan to buy additional securities in your M1 Finance portfolio, the potential losses in your portfolio will be magnified
You can read more in their margin disclosure statement.
In addition to lending and investing services, M1 Finance also offers a digital, FDIC-insured checking account that you can integrate with your investing account. You can use it exactly as you would a traditional checking account, and it comes with all the same features: direct deposit, money transfers, and a debit card.
There’s no monthly minimum balance you need to keep, and M1 Plus users can earn 1% cash back on certain purchases, 1% APY on the account, and ATM fees are reimbursed up to four times per month. M1 Basic account holders can’t earn cash back or interest on their account, and only receive one ATM reimbursement per month.
In addition to the current promotion for new M1 Plus accounts, M1 Finance offers a Refer and Earn program, which allows users to send a unique referral link to their friends and family.
You’ll earn $10 for every person who signs up and funds an account using that link. For you to qualify for the bonus, your referred friends and family must make an initial deposit of $100 into taxable accounts and $500 into an IRA within 30 days of signing up. They must also leave that money in the account for 30 days.
Who Should Use M1 Finance?
M1 Finance offers a number of low-cost, no-fee robo advisor features for passive or beginner investors or for investors who want a combination of automation and hands-on control. They also offer competitive banking services for those who prefer to keep all of their financial services in one place.
However, if you’re an active trader, prefer investing in mutual funds, and want the advantage of tax-loss harvesting, you might want to consider using a different investing platform.
M1 Finance is both an online brokerage and robo advisor. It has highly-rated interface, fund availability, and low costs. They offer investment portfolio templates you can choose from, and you can invest completely free.Show Hide more
- Free to trade
- Offers fractional investing and no hidden fees
- You can borrow against your portfolio in some instances
- Automates investing and rebalancing
- They don’t offer tax loss harvesting
- They only offer stocks and ETFs; no mutual funds
Hands-off investors who want the benefit of a robo advisor with $0 per trade. Also, it’s best for people who want to invest in stocks and ETFs, not mutual funds.