M1 Finance: How Does It Work?

M1 Finance is a Chicago based investment management platform, established in 2015 by Brian Barnes (Founder and CEO). It stands apart from others due to its unique amalgamation of automated investing with high-level customization. This allows its clients to build portfolios personalized to their desired stipulations.

M1 Finance’s investment element provides investment portfolio templates that are known as “Pies”. Such Pies are based on MPT or Modern Portfolio Theory that is incorporated by several Robo-advisors in their algorithms. But it lacks the series of questions asked by other Robo-advisors to determine your investment risk tolerance. You have the choice to invest all your money in these prebuilt templates or customize them.

But M1 Finances operates more like a traditional investment brokerage platform where you can choose your own investments for your Pies. You are allowed to buy individual stocks and exchange-traded funds (ETFs) within your account as well as prebuilt Pies.

M1 Finance Main Features:

  • M1 Finance is free to use for all and has no minimum initial investment requirement.
  • M1 Finance offers many account options including joint, taxable, SEP IRA, Rollover IRA, Roth IRA, trusts, and traditional IRA.
  • M1 Finance carries out automatic portfolio rebalancing while offering features like socially conscious investing, automatic deposits (daily, weekly, and monthly) and fractional shares.
  • It also offers an assortment of investment categories to help you build your investment pie. The categories include-
  1. Socially responsible investing
  2. Sector-specific investing
  3. Bonds
  4. Hedge fund based investing
  5. Stocks
  6. Retirement investing
  7. General investing
  • Customer services are available via email and phone (Monday to Friday between 9:00 am and 5:00 pm CT) 
  • The platform offers easy access to your mobile devices. So, you can check on your investments from anywhere at any time. It is available as an app for both iOS and Android.
  • Provides SIPC  account protection covers up to $500,000 including $250,000 cash against broker failure.
  • M1 Borrow is a new and attractive feature added to M1 Finance. Through this feature, they provide a line of credit with an APR of 4.25% that is available for instant access. You are only eligible if you maintain a margin brokerage account. This would be with a balance of at least $10,000. You are allowed to borrow up to 35% of your portfolio.

How To Start Savings With M1 Finance?

You can start saving with M1 Finance by simply setting up your account like other Robo-advisors. Setting up the account will establish your portfolio preferences and you get started by customizing your investment portfolio without funding the account. After you’ve signed up M1 Finance will suggest a pie that shows a distribution of preselected investment categories that are fitting for your individual profile.

What is the M1 Finance investment strategy?

M1 Finance follows the strategy where it rebalances investments so that its client’s savings are able to grow more efficiently with superior tax reduction. Basically, M1 is successfully helping investors grow money automatically while diminishing the tax load. They also allow customization of investment strategies which you can learn more about by contacting them.

What is the M1 Finance investment strategy

What About the Fees & Commissions?

M1 Finance is popular because it does not charge any fee for any portfolio management nor any trading fees for withdrawals or deposits connected to a bank account. But additional service fee such IRA conversion does apply along with other regulatory fees.

M1 Finances offers an M1 Plus account for $100 which provides you with a second daily trading window along with a discount on the rate of interest when borrow or take out a loan through M1 Borrow. The $100 charge is revised after the first year. Clients need to pay $125 from the second year for their M1 Plus membership.

M1 Finance Pros, Cons, and Who Is It For?

Pros:

  • It charges no trading commission. You can buy and sell the securities with each Pie free of cost.
  • M1 Finance is free and does not charge any fees or commission.
  • It allows you to choose your own investments and operate on automated portfolio management.
  • Does not require any minimum initial deposit. You can open an account with zero money and begin investing as your account reaches $100.
  • M1 Finance can maintain your Pie allocations with fractional shares and in so doing it is fully investing the money.
  • Revenue generation transparency.
  •  You can place orders of individual stocks or ETFs.

Cons:

  • M1 Finance only allows the purchase of ETFs and stocks but no mutual funds. It has limited investment options.
  • Accounts holding less than $20 with no trading activity for 90 days are charged a fee.
  • It is incapable of identifying outside holdings or investments such as employer-sponsored retirement plans.
  • M1 Finance does not offer tax-loss harvesting.
  • Does not employ any financial advisors.
  • No online chat support.
  • The trade placing manner puts transaction timing out of control.

After analyzing the pros and cons one can understand that M1 Finances is ideal for experienced investors since they will enjoy the high-level customization option of the portfolios. It is out here in the business to compete against online brokerages and not Robo-advisors which is why it is not ideal for beginner investors. M1 Finance is basically tailored to help investors who are already aware of what they want by allowing them to do it in a much easier and cheaper way.

The Bottom Line

M1 Finance, quite an interesting automated investment platform that has emerged in recent times.  It’s free, which is a major perk without a doubt. But what’s notable is even though it is free it is offering such efficient and complex services with reliability. You get to choose your investments and get help managing the same sounds as ideal as it gets. So if you wish to have control yet enjoy a little less of the responsibilities, M1 Finance is for you.