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M1 Finance Review: Free Investing for the Long-Term

M1 Finance

For the Buy and Hold Investor

Do you constantly maintain your investment portfolio? Maybe you are drained from all the commission fees from your broker? Enter M1 Finance. M1 blends the knowledge of a classic financial advisor with the convenience of a robo-advisor to provide investors a one of a kind investing experience. Check out our detailed review of the M1 Finance platform below to learn if they are the right broker for you.

What is M1 Finance?

M1 Finance is a free online brokerage firm that allows investors to buy stocks, bonds, and ETFs. They offer a sleek designed website and easy-to-use app for investors’ convenience.

What Do They Offer?

Individual and Retirement Investment Accounts

M1 Finance provides all the accounts you would find in any normal brokerage firm. They offer taxable individual/joint accounts, and Roth, SEP, and Traditional IRAs for those saving for retirement. They even offer trust accounts for those that are interested. All investment accounts are backed by SIPC insurance up to $500,000.

M1 Spend/Plus

M1 offers a free cash management service known as M1 Spend. Account holders can set up direct deposits, have access to a debit card, and pay their bills, all from the comfort of the M1 app.

M1 Finance also provides another tier to their cash management service, known as M1 Plus. Account holders have all the perks of M1 Spend but can earn up to 1.5% interest (FDIC insured) in their checking account. That’s 25x the national average for interest earned in a checking account! Additionally, M1 also offers a 1% cash back debit card, exclusive access to a second trading window, and discounts on M1 Borrow.

While it may sound too good to be true, there is a catch. M1 Plus membership costs $100 per year. While their checking account interest is unmatched in the rest of the banking/investing sector, it may not be advisable for all customers, specifically those with small account balances.

Luckily, M1 offers a cost estimator on their site so you can determine if their service is worth the price. Be sure to check it out and make sure it’s appropriate for you.

M1 Borrow

M1 Finance also presents another free service called M1 Borrow. This service allows members to borrow up to 35% of their portfolio on a margin. Members don’t have to wait for a credit check, fill out any paperwork, or deal with a potential denial. They also offer competitive interest rates as low as 3.75%, or 3.5% to M1 Plus members.

As always, before you enter any borrowing transaction, be sure to read the fine print.

M1 Finance

Advantages

Pie Investing

Alright, back to investing. M1 Finance offers a unique investing approach by employing their investment “pies”. These pies are simply an interface that allows shareholders to visualize how their investment portfolio is divided into different percentage slices, hence the pie.

What’s even more impressive about these pies is that investors can choose from over 6,000 stocks and ETFs to create their perfect portfolio. Investors can mix and match the percentage of any security to maintain a flawless target allocation. Oh, and all with zero commissions!

For the novice investor, M1 Finance offers over 100 pre-built expert pies. These pies were developed with particular goals and objectives in mind for each investor. Check out the various pie categories below.

  • General Investing
  • Retirement Investing
  • Responsible Investing
  • Income Investing
  • Hedge Fund Followers
  • Sector Specific Investing
  • Just Stocks & Bonds

M1 Finance

Fractional Shares

Let’s say you’re creating a new portfolio and you want to include some Amazon (AMZN) stock to your pie. A single stock of Amazon is currently trading above $1,700. That is a lot of cash for just a single stock of a company! What’s a broke investor to do?

With M1 Finance, investors can purchase fractional shares of a security. This means you can acquire a piece of Amazon stock for less than $1 and still have all the benefits of being an Amazon shareholder! M1 can split securities down to 1/100,000th of a share, making practically any stock or ETF within anyone’s reach.

The ability to buy fractional shares is a great benefit to shareholders. From beginners just starting out with a small account balance, to the experienced investor who wishes to preserve an exact target allocation, fractional shares make investing that much simpler.

Automatic Rebalancing

Another special feature offered by M1 Finance is their automatic rebalancing of your portfolio. We all have a particular target allocation we would prefer to hold within our portfolios, but the fluctuations of the market can cause certain slices of your pie to become over or under weight.

With M1’s dynamic rebalancing feature, maintaining target allocation is a breeze. If you’re buying stocks, M1’s algorithm will automatically purchase the slices of the pie that are most underweight. Likewise, if you sell some stocks, M1 will ensure that it withdraws from the allocations that are most overweight. Easy!

Auto-Invest (DRIP)

Last, but not least, is the Auto-Invest feature. Whenever an investor funds their portfolio, all the deposits will land in the cash balance section of the portfolio. This also includes all dividends that are gained from a portfolio. Using the Auto-Invest feature, M1 will automatically invest any cash balance over $10 directly into your pies. This way, your money is being invested as quickly as possible.

Investors can also set their own cash threshold at which M1 will automatically invest or opt out of the program. This feature essentially acts just as effective as a Dividend Reinvestment Program (DRIP). With Auto-Invest and Automatic Rebalancing combined, it will automatically place your cash in the cheapest securities of your portfolio. This is value investing on auto pilot!M1 Finance

Limitations

Slow to Trade

Unless you are an M1 Plus member, they only offer investors one trading window each day. Investors seeking to buy or sell an asset quickly at a specific price is not guaranteed to obtain that price with M1.

That being said, M1 Finance is personalized for long-term investors who aren’t concerned with day-to-day price fluctuations.

No Automatic Tax Loss Harvesting

Unlike some other popular investing apps, M1 Finance does not offer an automatic tax loss harvesting feature. However, tax lost harvesting is a skill that most investors can learn rather quickly. With M1’s pie system, this task can be implemented effectively on your own.  

Is M1 Finance For You?

For the Enterprising Investor

For the investors whose strategy is focused on short-term profits and quick trading, then M1 is most likely not for you. M1’s single trading window and basic stock analysis does not lend itself well to the active trader. There are other zero commission platforms suited for technical investors that would be more effective.

For the Defensive Investor

M1 is the perfect fit for the defensive, passive, or even beginner investor. With the brilliant pie system, an investor can make their portfolio as simple (or as sophisticated) as they desire. If you’re a novice and don’t know where to start, you can simply buy into one of the diverse pre-made pies. If you are a shareholder that loathes portfolio maintenance, then all of M1’s features makes rebalancing a piece of cake.

With their unique pie investing style, M1 Finance combines passive robo-advising and basic investment management to offer investors the best platform on the market. M1 presents a great (free!) service to build wealth for the long term, with an experience tailored to buy and hold investors.

Interested in M1 Finance?

For those interested in trying out M1 Finance, VVI readers can click here or the image below to sign up using our affiliate link.  

Looking for a service that offers quick trades? Check out our review of the zero commission broker Webull.

M1 Finance