M1 Finance Review

m1-finance-review-2017

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If you are a buy-and-hold investor who wants the control over your investments that brokers provide and also the benefits of an automated investment management service similar to what robo-advisors offer, then M1 Finance might well be your holy grail.

The problem with buy-and-hold investing in a brokerage account is that, over time, your investment holdings and position sizings drift. This means one or a few positions often represent a large percentage of the overall portfolio, thereby causing it to be out of balance compared to when you started.

But what if you could choose a portfolio that matches your financial goals and risk profile while still maintaining the power to customize it as you wish, and enjoy the benefit of having it automatically managed? What if you didn’t have to monitor your portfolio regularly because it always remained balanced?

If that innovative solution sounds attractive, then M1 Finance may well be exactly what you have been looking for, but what else should you consider?

M1 Finance Spotlight

M1 FINANCE SPOTLIGHT

m1 finance circle logo

InvestorMint Rating

4 out of 5 stars

  • First $1,000: FREE
  • $1,000 → $100,000: 0.25% (annually)
  • $100,000+: 0.15% (annually)

via M1 Finance secure site

Is M1 Finance Right For You?

M1 Finance is designed for investors who want the option to control which investments are in their portfolios and also want ongoing automated investment management to keep the portfolio balanced.

If you like to be 100% hands-off when investing then a pure robo-advisor may be ideal. You could check out Betterment or Personal Capital, who will invite you to answer some questions relating to your risk profile and financial goals, and then rely on algorithms to automatically invest your money.

Or if you like to be an active trader glued to your screen daily, you could look to souped-up trading platforms like thinkorswim or tastyworks, which give you full control over your money and how you invest it.

But what if you want to pick a diversified portfolio “off-the-shelf” that matches your retirement objectives and then be hands-off? Or what if you want to add shares of a company to that same portfolio and then not need to monitor it each week to make sure it is still balanced?

Where M1 Finance shines is in providing you the customization to select investments yet the automation to manage your portfolio as time goes by.

You can check in on your portfolio as little or as often as you wish, so you get the best of both worlds: control over the selection of investments and ongoing automated investment management.

How M1 Finance Works

Create your own portfolio that M1 Finance will manage automatically to maintain the same position weightings you chose day one, or select among portfolios that have been created already for you.

The way M1 Finance works is through a process it calls Pie Investing.

Think of a portfolio as a pie with lots of slices, each representing a stock or ETF, or some other pie. M1 Finance gives you the opportunity to pick a “pie” that has already been created, and make changes to it, or you can create your own custom pie.

m1 finance etfco pie based investing

So, let’s say you want your portfolio to combine mostly ETFs but you also want to add a small portion of a higher risk stock, such as Facebook or Alphabet, to possibly boost your returns, now you can. But you can do that at many ordinary brokerage firms too, so how does M1 Finance stand out from the pack?

Where M1 Finance shines is that if you were to create the same portfolio elsewhere, you would need to monitor it regularly to make sure the “slices of the pie” stay the same size over time.

Another way of saying that is you don’t want one position, say your risky stock, to become a really large part of your portfolio. If it did, your portfolio would have larger swings up and down compared to when it was first built and balanced.

And the nice thing about M1 Finance is if you don’t know where to begin, for example you don’t know what investments to select on day one, you can simply pick a pre-populated pie that fits your investing style.

Each pie can have as many as 100 slices that are made up of individual stocks, ETFs, or even other pies, so portfolios can be as diversified as you wish based on your risk preferences.

What Is M1 Finance Pie Investing?

M1 Portfolio provides template portfolios, or pies, in a range of categories, including General Investing, Plan for Retirement, Responsible Investing, Income Earners, Hedge Fund Followers, Industries & Sectors, Just Stocks and Bonds, and Other Strategies.

No matter what your financial objectives, you will almost certainly find a portfolio, or pie, that matches your goals.

M1 Finance has created a list of portfolios to cater to almost every need. And of course, you can always create your own custom portfolios, or pies.

The pre-created portfolios M1 Finance offers in the General Investing section include:

GENERAL INVESTING

Type Portfolio Composition
Ultra Conservative
  • 82% Short-term Treasury Bonds [SHY]
  • 6% Small U.S. Stocks [VB]
  • 6% Developed Market Stocks [VEA]
  • 2% Large U.S. Stocks [VOO]
  • 2% Emerging Market Stocks [VWO]
  • 2% Municipal Bonds [MUB]
Conservative
  • 61% Short-term Treasury Bonds [SHY]
  • 8% Small U.S. Stocks [VB]
  • 7% Large U.S. Stocks [VOO]
  • 6% Municipal Bonds [MUB]
  • 5% Corporate Bonds [VCIT]
  • 3% Emerging Market Stocks [VWO]
Moderately Conservative
  • 37% Short-term Treasury Bonds [SHY]
  • 14% Developed Market Stocks [VEA]
  • 12% Large U.S. Stocks [VOO]
  • 11% Corporate Bonds [VCIT]
  • 10% Small U.S. Stocks [VB]
  • 6% Municipal Bonds [MUB]
  • 5% U.S. Total Bonds [BND]
  • 3% Emerging Market Stocks [VWO]
  • 2% International Bonds [BNDX]
Moderate
  • 22% U.S Total Bonds [BND]
  • 18% Developed Market Stocks [VEA]
  • 17% Large U.S. Stocks [VOO]
  • 13% Small U.S. Stocks [VB]
  • 11% Corporate Bonds [VCIT]
  • 5% Short-term Treasury Bonds [SHY]
  • 5% Municipal Bonds [MUB]
  • 4% Emerging Market Stocks [VWO]
  • 4% International Bonds [BNDX]
  • 1% Real Estate [VNQ]
Moderately Aggressive
  • 27% Corporate Bonds [VCIT]
  • 23% Large U.S. Stock [VOO]
  • 21% Developed Market Stocks [VEA]
  • 14% Small U.S. Stocks [VB]
  • 7% International Bonds [BNDX]
  • 5% Emerging Market Stocks [VWO]
  • 2% Real Estate [VNQ]
  • 1% Mid-Size U.S. Stocks [VO]
Aggressive
  • 29% Developed Market Stocks [VEA]
  • 26% Large U.S. Stocks [VOO]
  • 14% Small U.S. Stocks [VB]
  • 11% Corporate Bonds [VCIT]
  • 6% Mid-Size U.S. Stocks [VO]
  • 6% Emerging Market Stocks [VWO]
  • 5% Real Estate [VNQ]
  • 3% International Bonds [BNDX]
Ultra Aggressive
  • 34% Developed Market Stocks [VEA]
  • 29% Large U.S. Stocks [VOO]
  • 13% Small U.S. Stocks [VB]
  • 9% Mid-Size U.S. Stocks [VO]
  • 7% Emerging Market Stocks [VWO]
  • 7% Real Estate [VNQ]
  • 1% International Bonds [BNDX]

M1 Finance Pros and Cons

M1 Finance is more expensive than many of the best robo-advisors but cheaper than traditional financial advisors. It charges no commissions – unlike most brokers – and has no minimum account balance to get started. To ensure you stay fully invested, fractional shares are supported. The main drawback is that tax loss harvesting services are not offered.

M1 Finance Pros M1 Finance Cons
Low Fees: Your first $1,000 is managed free and thereafter M1 Finance charges just 0.25% of assets under management up to the first $100,000 and 0.15% thereafter. Tax Loss Harvesting: While tax-loss harvesting is not offered, tax minimization is designed to lower the impact on your tax bill from selling your holdings.
No Commissions: No commissions or markups are charged over and above the management fee. Buy-And-Hold Bias: M1 Finance is designed primarily for buy-and-hold investors more so than active traders, who would do better with thinkorswim or tastyworks.
Dynamic Rebalancing: To avoid portfolio drift, M1 Finance dynamically rebalances portfolios. High Supplemental Fees: Although management fees are lower than traditional advisors, other fees such as for wiring and returned checks are hefty.
Extensive List of Portfolio (or Pie) Templates: Whether you are investing for retirement, the short-term, or want exposure to a certain sector or industry, you have a wealth of template pies from which to choose – or you can customize your own portfolio.
Supports Many Account Types: A wide range of account types are supported, including individual, joint, retirement, trust, and entity.
Low Account Minimum: You can open an account at no cost and invest as little as $0.01 in any security because M1 Finance supports fractional shares (however keep in mind the exchange fee when selling is $0.02).

M1 Finance Fees

On an account balance of $5,000, M1 Finance claims to charge just $0.83 per month on average which compares favorably to many better known brokers when factoring in commissions charges (which are zero at M1 Finance). An investor with $120,000 invested would pay on average $14.88 per month based on its fee schedule.

To get started at M1 Finance, your first $1,000 costs nothing but thereafter you will pay 0.25% of assets under management up to the first $100,000 and 0.15% on amounts above that threshold.

m1 finance clear simple pricing

Compared to traditional advisors charging approximately 1% annually, M1 Finance claims to generate higher returns net of fees over a 20 year period.

If you were to start with a $100,000 portfolio, for example, M1 Finance estimates it would save you as much as $38,739.

m1 finance fees 100k

Note that you will not get charged commissions or markups on trades over and above the management fee.

OTHER FEES

Fee Type Amount
Overnight Mail $50
Paper Statement Fee $5
Termination Fee $60
Domestic Wire Transfer $25
Returned Checks/ACHs/Wires $30
TOD Account Transfer Fee $200
Incoming Automated Account Transfer FREE
Outgoing Automated Account Transfer $75
1st year Retirement Service Maintenance FREE

M1 Finance Accounts

M1 Finance supports a wide range of account types, including individual, joint, retirement, LLC, trust, corporation, and partnership.

Type Capability
Individual Non-retirement YES
Joint Non-retirement YES
Roth IRA YES
Traditional IRA YES
SEP IRA YES
Rollover IRA YES
401(k) YES
Trusts YES
LLC YES
Corporation YES
Partnerships YES
529 Plans No

M1 Finance Tax Strategy

To make sure portfolios do not drift, M1 Finance practices dynamic rebalancing. Where M1 Finance loses a few marks is on its tax focus: tax-loss harvesting in the conventional sense as practiced by robo-advisors is not offered but tax minimization is supported.

Type Capability
Tax Loss Harvesting NO
Tax Minimization YES
(optimizes sales based on tax impact)
Dynamic Rebalancing YES

M1 Finance Summary

M1 Finance is a mix of a broker and a robo-advisor. Like a broker, you can buy stocks and ETFs easily for your portfolio. And like a robo-advisor, your portfolio will be dynamically rebalanced to ensure position sizings remain aligned with your original choices.

You can select off-the-shelf template portfolios, called pies, that span a wide gamut of investment styles. Whether you are conservative, aggressive, want exposure to a certain industry or sector, or simply prefer to add your own favorite stock to an existing “pie”, you can customize portfolio constructions easily.

Management fees are higher than at most of the top robo-advisors, but M1 Finance gives you a lot more control than they do, so you pay a premium for the ability to be more hands-on.

Where M1 Finance loses points compared to some leading robo-advisors is by not providing tax-loss harvesting services, though most brokers don’t offer this service, so as a hybrid broker/robo-advisor service it’s not entirely a surprise.

The bottom line is if you want the benefits of ongoing investment management associated with robo-advisors but also want the customization of picking your own stocks like you get with a traditional broker then M1 Finance is well worth checking out.

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