M1 Finance:
10 reasons why you need to use it
The choices are nearly limitless. Schwab, Vanguard, Robinhood, ETrade, and on and on.
There are so many brokers and investment platforms to choose from. It can be exhausting trying to determine which one to go with.
Let alone whether it’s worth moving all your investments to a new one.
But when it comes to asset allocation and building a portfolio, one stands heads and tails above the rest: M1 Finance.
There is a decent chance you haven’t heard of M1 Finance. It’s relatively new and smaller than some of the other major platforms.
Founded in 2015, it now has over $2 billion in assets and over 500,000 clients.
M1 isn’t a day trading platform, but it’s also not a robo-advisor.
It lies somewhere in the middle in the best way possible.
It has the perfect combination of automated investing with a high level of customization.
You build the portfolio you want and the platform does the rest.
With that in mind, here are the 10 reasons you should be investing with M1 Finance.
1. Free Trades
This has been common practice across the industry, but it still worth repeating: FREE TRADES. There is no cost to buy or sell on M1.
While this is always a good feature to have, it’s especially important for a couple features that will be covered later in our list.
2. Fractional Shares
While not quite as common across the industry, Fractional Shares is becoming a norm and M1 Finance already has it.
Fractional shares allow you to invest as much or as little as you want without the worry of having enough money to buy a whole share.
The cost of one share of Berkshire Hathway Class A stock is over $300,000! Without fractional shares, you’d need to have $300,000 to invest.
Fractional shares allow an investor to buy a small fraction of that Berkshire stock with whatever amount they want to invest.
Could be as little as $20. Or $10 dollars. It doesn’t matter.
This is also where Free Trades makes a big difference.
At other brokerages where they don’t offer free trades, you’d never invest $10 because it cost $5 just to buy the stock.
That would mean your investment would have to go up 50% just to break even.
Free Trades combined with Fractional Shares means you can invest as much as you want, whenever you want.
3. Retirement and Non-Retirement Accounts
M1 Finance offers both taxable and tax-free retirement accounts. They offer:
- Individual Accounts
- Joint Accounts
- Roth IRAs
- Traditional IRAs
- SEP IRAs
- Trusts
4. Pies
Here is where we get down to what really makes M1 Finance special and stand out from the crowd.
The previous 3 items were bread and butter issues. Quite a few brokers and robo-advisors offer all three, but it’s a non-starter without them.
Pies make investing in any type of portfolio a breeze. It’s intuitive.
Let’s say you read about the Permanent Portfolio, really liked it, and wanted to model your portfolio after it.
Now let’s also say you have $800 to invest. That means $200 per asset.
With any other broker, you’d need to calculate how many shares your $200 would buy and then place an order to buy that many shares.
That would have to be done three more times for the other three assets.
Imagine having to do that for a portfolio that holds 6 or 7 assets.
Pies with M1 removes all of that.
With M1, you create a pie that is sort of like a template.
You’d pick the assets you want as part of the pie and what percentage you’d like allocated to each asset.
In the case of the Permanent Portfolio, you’d select the four assets and set each of them to 25%.
Then you’d hit a button saying “Buy Portfolio” and M1 does the rest.
It automatically invests your $800 into the four assets such that you own 25% of each.
No calculations. No multiple orders. Just one click and you’re done.
It’s even more convenient when trying to follow a tactical portfolio.
Instead of spending the time to figure out how much to sell, how much to buy, and entering all the orders on a monthly basis, you just change your pie template.
You change the allocation percentages on your Pie template, hit the ‘Rebalance’ button and you’re done.
M1 automatically sells assets that are overweight and buys the ones that are underweight or new to the portfolio.
All with the allocation that is determined by your template.
5. Dynamic Rebalancing
Let’s use the Permanent Portfolio example from above.
You’ve been invested with a lump sum in the Permanent Portfolio for a while.
Some assets have done better than others and now your portfolio is a little skewed.
Instead of each asset making up 25% of the portfolio, it’s more like 28%, 26%, 24%, and 22%.
Now you want to invest some more money into the portfolio.
Again, instead of calculating what should go into each asset, just hit “Buy Portfolio.”
M1 will invest your money so that it starts to bring it back in-line with an even 25% allocation.
It knows to buy more of the assets that are at 24% and 22% instead of the ones that are overweight.
How about in the opposite direction? You want to sell some of your portfolio.
Hit the “Sell” button and M1 will automatically sell the assets that are overweight.
Dynamic Rebalancing invests and sells so that your portfolio is always moving towards the ideal allocation identified in your Pie template.
6. Nested Pies
Accounts are a poor way to budget and allot your money.
A portion of it could be saving for a house, another portion for discretionary spending, and maybe another portion for an emergency fund.
With all of that money in one account, you’d have to track how much is in each portion on your own.
Nested pies allow you to partition your account into different pie slices and pick a portfolio to track for each slice.
Here’s an example.
You’ve got an account that you want 50% to be for an emergency fund, 25% for discretionary spending, and 25% for a downpayment on a house.
Great. Create a Pie Template with those three slices and that will be your “Account Pie.”
Now with your 50% emergency fund, you don’t want want to invest in anything crazy. This is an emergency fund after all.
So you create a Pie Template that is 100% Short Term US Treasuries.
Then you set the 50% of your Emergency Slice to invest in the 100% Short Term US Treasuries pie.
With the 25% allocated for a house downpayment, you’re willing to be just a tad riskier and are willing to put 10% into the S&P 500 and the other 90% into US Short Term Treasuries.
Create a new Pie Template with that 10/90 allocation and invest the 25% House Slice in your new 10/90 Pie Template.
With Nested Pies you can fine-tune your investment strategies based on different goals all within one account.
7. Follow Multiple Strategies
Nested Pies also gives you the ability to easily follow multiple portfolio strategies.
Maybe the more you’ve read about Tactical Asset Allocation, the more intrigued you are with allocating 20% of your portfolio to one of the strategies.
You can create a new pie template with one pie slice being 80% Buy and Hold and 20% being Tactical.
Create another Buy and Hold Pie Template that follows the Permanent Portfolio.
Invest the 80% pie slice in your new Buy and Hold pie template.
Create a second Tactical Pie Template that follows the Composite Dual Momentum portfolio.
Invest the 20% pie slice into your Tactical Pie Template.
The pie methodology in M1 Finance makes portfolio investing, asset management, and tactical asset allocation a breeze.
8. One-Click Rebalancing
While Dynamic Rebalancing tries to keep your pies and asset allocation on target through new investments and withdrawals, you may eventually want to rebalance.
Some Tactical Portfolios rebalance once a month. It’s also good to rebalance Buy and Hold strategies on a regular basis.
With other brokerages, you need to get out the pen, paper, and calculator or pull up your Excel spreadsheet and figure out how much of each asset needs to be sold and bought.
Not the case with M1. With M1, you hit one button and your portfolio will automatically rebalance.
9. M1 Spend
While not exactly a brokerage feature, this is a very powerful tool to make sure you put all your money to work.
Most checking accounts pay little to no interest. In this interest rate environment, the same goes for savings accounts.
That means any excess money sitting in a checking or savings account isn’t doing anything. With inflation, it’s technically losing money.
M1 Spend is a fairly standard checking account.
However, to make sure your extra money doesn’t sit idle, M1 Spend allows you to set an account threshold and sweeps any excess funds to your investment account.
From there, M1 can automatically invest those extra funds and put your money to work.
10. No Management Fees
All of the features mentioned above are absolutely free.
There are no management fees charged by M1 Finance.
A premium tier called M1 Plus has a few added features, including additional interest earned on your M1 Spend account, but all of the features listed above are available on the free tier.
Conclusion
M1 Finance has all the basics of a traditional brokerage firm along with the technology of a robo-advisor bundled into one easy to use package.
And it’s free.
When you combine the power of Pies with Nested Pies, Dynamic Rebalancing, and no fees, you get a simple and powerful investing machine.