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In this review of M1 Finance, you’ll learn how the automatic investment service works, how it builds and manages your portfolio, and whether it is the right tool for you.
Though essential, investing for the future is a difficult part of everyone’s life.
Finding extra money to set aside is hard. Knowing what to do with that money is harder yet, and actually executing your plans makes saving and investing the most difficult of all.
All you have to do is deposit money into your account and M1 Finance will invest it in a diversified portfolio on your behalf.
What is M1 Finance and How Does it Work?
M1 Finance is a robo-advisor company that aims to make investing easier for people who want help with choosing and managing their investments.
Unlike human financial advisors, robo-advisors are programs that automatically invest your money for you. You provide the program with information about yourself, such as your age, financial situation, goals, and risk tolerance.
The software takes your information and uses a series of algorithms to design a portfolio that will meet your needs. It then purchases the investments required to build that portfolio. As you add or remove money from your account, the M1 Finance robo-advisor automatically keeps your portfolio balanced.
M1 Finance describes itself as “the ultimate financial tool,” which helps you save time, earn more, feel confident, and join the excitement of investing.
It’s easy to get started with M1 Finance. There are no minimum balance requirements to meet or account opening fees to pay. Simply download the app to your phone or visit the company’s website to sign up for a free account. You can create your account in minutes.
Starting a free account requires some basic information about yourself. M1 Finance will use this information to verify your identity. You’ll also need to link a bank account. This account will be used for making deposits into your M1 Finance account. Additionally, any money withdrawn from M1 Finance will be sent to this linked bank account.
Once your account has been created, you’re ready to start investing.
The Investing Pie
Traditional brokerages let you invest in a variety of assets, including stocks, bonds, real estate, and cash. You can determine what percentage of your money you’d like to invest in each asset, but it’s up to you to maintain those percentages.
With M1 Finance, the program does everything for you. When you decide which investments to make, M1 Finance asks you to create your “Pie.” This is your set of chosen investments, which can include individual stocks or bonds, Exchange Traded Funds, and more.
Your Pie is visualized as a pie chart. It shows the breakdown of the investments that you’ve chosen. You’ll be asked to set the target percentage for each slice (investment) of your Pie.
Upon creating your Pie, all you have to do is deposit funds into your M1 Finance account. The software will automatically distribute your money to your chosen investments as specified by your Pie.
As time passes, each slice will grow or shrink based on the recorded returns. When you make additional deposits, M1 Finance will allocate your money with the goal of bringing each Slice back to its target.
If you need some help designing your Pie, you can choose from a list of curated Expert Pies.
These Pies have been put together by investment professionals and are aimed at different goals, risk tolerances, and industries. You can use one of these Expert Pies as an easy way to target your goals or to get exposure to specific companies in an industry.
There are a wide variety of account types that you might want to open when you invest. If you’re investing for the medium term, you might want a taxable brokerage account. Saving for retirement lets you use special retirement accounts that offer tax benefits. If you have a partner, a joint investment account gives you both access to the money.
When you open your M1 Finance account, you’ll need to choose the type of investment account(s) that you’d like to open. The company offers individual, joint, trust, and retirement accounts.
If you want the robo-advisor to work as well as possible, you should try to keep as much of your money with M1 Finance as possible. A wide variety of account types is important for diversification.
Automatic and Rebalancing
There are two essential elements of long-term investing success: investing regularly and rebalancing your portfolio.
M1 Finance offers a variety of automation tools to make it easy for you to invest without having to think about it. You can set up automatic deposits from your bank to your M1 Finance account.
The robo-advisor will handle everything for you, from taking the money out of your account to purchasing the investments. You can schedule the deposits to be weekly, monthly, or on any other schedule that works for you.
Rebalancing is the process of keeping your asset allocation on target. If you want to have a portfolio that is 80% stocks and 20% bonds, it takes some effort to maintain that ratio. If the stock market falls, you might wind up with a portfolio that is 60% stocks and 40% bonds simply because the value of your stocks fell. The Rebalancing process entails selling high and buying low.
M1 Finance provides automatic dynamic rebalancing using the money that you deposit, saving you from the effort of calculating how you should allocate new money.
When you invest, your money is tied up in the market. You don’t want to sell your investments because you’ll incur taxes and you might miss out on gains. Still, you want some way to use your money if you need it.
M1 Finance offers lending services, allowing you to borrow up to 35% of your investment portfolio’s value.
Upon signing up for M1 Finance, you get access to its lending service instantly. There is no extra paperwork to do, no credit check, no loan officer to speak to, and no denials.
There are also very few restrictions on what you can use the money for. You can use the loan to make a down payment on a house, fund a wedding, or buy a new car. Many people use the loan to refinance existing debt at a lower interest rate. If you prefer, you can even borrow money to invest in your M1 Finance Pie, adding leverage to your portfolio.
The interest rate on M1 Finance’s loans is very low, making it an attractive choice for people who keep their money at M1 Finance. It’s even lower than typical loan sources, such as personal lenders or credit cards.
M1 Finance FAQ
Here are some of the most common questions people have about M1 Finance.
How Does M1 Finance Make Money?
M1 Finance makes money by charging interest on the loans it offers to its account holders. It also lends the securities that its customers purchase to other investors, earning money from those loans. The company does not make money from account fees charged to customers.
Does M1 Finance Allow Fractional Shares?
If you do not deposit enough money to buy a full share in a company’s stock, M1 Finance will purchase a fractional share of the stock for your account.
Is There a Minimum Amount You Can Invest in a Stock?
You can open an M1 Finance account without meeting a minimum balance requirement. Once you open an account and build your Pie, you can invest in any number of securities. While you can’t buy securities for less than a penny, M1 is able to invest your money without other minimums.
Who Should Use M1 Finance?
M1 Finance offers a lot of attractive features. Most robo-advisors charge fees that have a noticeable impact on your returns, so the chance to get free robo-advisory services can be tempting.
The people who will get the most use out of M1 Finance are those who don’t want to spend much time thinking about their investments and who don’t want to pay for more advanced advisory services. As a great “set it and forget it” solution, M1 Finances appeals to many people who prefer a simple investing solution.
M1 Finance Review Summary
Every company has its pros and cons, and M1 Finance is no exception. As a free robo-advisor that makes investing easy, M1 Finance is worth your consideration.
- No minimum investment
- Multiple account types – taxable, IRA, trust, etc.
- No fees
- No tax-loss harvesting service
- Trades execute once per day
Best for: M1 Finance is a good choice of robo-advisor for most new investors. Its lack of fees and minimum investment mean that anyone can easily start using the service. Where it falls behind is in more premium features, such as tax loss harvesting, which other robo-advisors claim can make up for the fees they charge.
If you’re looking for a hands-off investment solution, sign up to put your investments on autopilot.
M1 Finance is a combination online brokerage and robo advisor. It's very highly rated across the personal finance community for it's 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 do not 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.
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