M1 Finance Review: free and easy to use
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M1 Finance is another in a long line of investment platforms available online. They offer some cool and unique features that help it stand apart from the competition.
How does M1 Finance Score:
Cost and Fees: 10 out of 10
Ease of Use: 9 out of 10
Features and Tools: 9 out of 10
Overall: 9 out of 10
What is M1 Finance?
M1 is an investing and portfolio management platform. They offer a ton of ways for you to choose how to invest your money. You can buy stocks, mutual funds, or expert "pies" (more on what that is later).
One of the best parts is their filters when setting up your initial investments and then later adding/updating investments. You can focus on certain industries, women-led companies, AAPI-led companies, and the options go on and on. This allows you to invest in things you are passionate about or just things you think will make you the most money!
How does M1 Finance work?
M1 Finance, at its core, is just like any other investment platform you might be familiar with. You may have a 401k with Fidelity, or maybe you have heard of E*Trade or Robinhood, and so on.
What M1 offers that others don't is a robust set of finance tools outside of just investing. Below you will find our "features" section where we talk in-depth about each of these tools. In addition, there are a ton of research tools
How can M1 Finance help you?
M1 is a fully-featured portfolio management tool with a robust set of additional money management tools available. If you are looking for an all-in-one place to invest, save, and use as a checking account, then M1 Finance is for you.
If you are looking for a straightforward tool for investing, again, M1 is for you. They make investing easy with the most pertinent data right on screen in an easy-to-understand user interface.
In addition to their simple tools and robust offerings, they have great resources to help you learn more about your investments. Or, if you aren't into that, then you can just set up a recurring investment and put your portfolio on auto-pilot. It really is one of the best personal finance tools I've seen on the market.
M1 Finance Features
M1 provides a ton of great features that you can take advantage of.
As you would expect, this feature allows you to invest your money. M1 makes this really easy when you first log into their system and set up an account. They take you step by step through individual stocks you can buy, then mutual funds or you can dive into their "Pies" option as well. All provide you with easy-to-understand information about what you are investing in. Take a look:
A custodial account is an account you set up for your kids. It is managed in just the same way as a regular investment account just under your child's name. Once your dependent reaches the legally defined age their investment account will be transferred to them and M1 will restrict you from trading.
At this point, your dependent can either withdrawal funds or transfer them to their own investment account.
Trust accounts are another great investment option on M1 Finance. You are required to have a $5,000 minimum to set up an account. These are required to be US domestic trusts in good legal standing, but for many investors, that shouldn't be an issue.
This is a sub-feature of Investing where you have the ability to invest in something like Black-run businesses, or Warren Buffet's portfolio, or environmentally friendly businesses. Basically, it is how your pie is sliced, but M1 does it in advance and gives you a ton of options based on what you prefer to invest in.
M1 offers you the option to set up a "Spend"/checking account. You get 1% cashback and 1% APY, which is a big deal if you are planning to keep your account long-term. The important part of the 1%/1% is that you have to open an M1 Plus account, more on that below.
Borrowing money from an investment account isn't the best use of saved funds over a long time horizon. Depending on your situation it might make sense to borrow from an investment account. If you are saving up to buy a home and want to make some interest on your savings as you are doing so, then go ahead and borrow from this account, especially if that was the intent all along. If you are borrowing due to financial hardship, then again, this makes sense, and borrow to ensure you can eat and have a roof over your head.
On the other hand, if you are borrowing to pay for a vacation or some other non-essential expense then you should think twice about how you are saving for those. I would suggest a CD because you don't have to pay that back when you cash it out.
Lastly, the Borrow feature is truly nice to have as an additional liquidity tool. Like I mentioned above it's not a great idea to pull money from an investment account, but the ability to do so, vs other accounts that are harder to pull funds from, creates a nice safety net should you need one (and in these modern times, who doesn't need one, am I right!?!).
M1 Plus is free for the first year and $125/year after that. You will want to ensure you are making the most of that $125/year to make it worth the cost. The way I justify the annual cost is using the card for purchases + my account balance at/above $12,500 (because 1% of $12,500 is $125).
1% APY on your Spend Account
1% cashback when using your spend account
Tons of investment options
Easy to use platform for investing
Automatic deposit option
Automatic investing option
Socially conscious investment options
Additional liquidity through the Borrow program
Typically, I don't comment on the Pros/Cons of a tool, but M1 Finance truly sets itself apart with the offerings they have devised. The lack of commissions or fees keeps your money working for you over the long term.
Their dynamic and automatic rebalancing tools keep your money safe from market changes so you don't have to actively manage your portfolio. It is important to understand the logic behind this rebalancing to ensure you are aligned with it. Basically, if you have 25% of your portfolio split across 4 assets and one of those assets is underperforming, as you automatically invest in your account, M1 will invest proportionally to bring all assets back to 25%.
Smarter withdrawals help you get the most out of your portfolio and pay the least taxes. If you are selling a portion of your portfolio, M1 will prioritize the assets that cause the lowest tax burden first, and escalate from there.
$125 annual fee on M1 Plus
Limited trading windows
$100 investment account minimum (some may see this as a pro)
$500 IRA account minimum
No human advisor support
No tax loss harvesting (more below)
Tax Loss Harvesting (TLH) is a key feature in many other robo-advisors and a feature I'm sure M1 will develop eventually, but for the time being, they don't offer it. For those of us (myself included) who don't know what TLH is let me break down what I've read. TLH means, if your assets gain value and you have some type of tax liability (typically short-term capital gains), you would sell assets that have lost value to offset the tax liability you would have to pay at the end of the year. Here is an example:
You buy 10 shares of Tesla on January 4, 2021 for $729.77
On January 8th you sell those shares for $880.02
You have just made $1,502.50 of short term gains
This is taxed, depending on if you are single/married/etc, at a variety of rates, but we use 22% (assuming single making between $40k-$85k)
You are required to pay $330 in taxes
You bought 10 shares of Apple on January 4, 2021 for $129.41
On March 8th you want to TLH so you can sell your APPL shares for $116.36, taking a $130.50 loss
What's great is, you can buy something similar on the same day for the same amount (let's say you take the money you have from your APPL shares and buy Disney), but your income will look like it took a hit and reduce your tax burden by $28.71 ($130.50 * 22%).
Does that all make sense? Hit me up if you have further questions on Tax Loss Harvesting, firstname.lastname@example.org
In summary, M1 doesn't offer that feature and it can be really useful if you are somewhat active with your investment account.
Alternatives to M1 Finance
How to get started with M1 Finance
Getting started with M1 Finance was just like any other investment account. You set up your user name and password, fill in some basic information, then they guide you through the rest of the process
That's the end of your basic setup. Next, you move onto setting up your first portfolio/Pie.
Who can benefit from using M1 Finance?
Anyone can benefit if the plan is to invest for a long time horizon, a buy and hold strategy. The way their platform is set up both novice and more seasoned investors will have all the tools they need for success.
The auto-investing tools you can set up, similar to automatically investing in your company 401k, are great. M1 will pull money from your bank account, at a date/time you determine, and automatically invest that money as you see fit. One of the easiest ways to build wealth over time is to set up automatic investing just like this. You will want to ensure you are maximizing your employer 401k before setting up an investment account though.
One key consideration for M1 is whether or not you want financial advice. There are great research tools available within the platform, but they don't offer human advisors (check out Sigfig if you want unlimited access to human advisors).
M1 is another great online investment tool similar to Sigfig, Stash, or Wealthfront. It doubles as an online bank and potentially a borrowing platform. If you feel confident in your ability to pick investments and/or just want to put your investments on auto-pilot, then M1 Finance is a great tool for you.