M1 Finance Review: Robo-Advisor For The Engaged Investor
Please see affiliate disclosure below.*
M1 Finance Review-For the Engaged Investor
“Forty years of research into behavioral finance tells us that the best way to invest is to define a strategy and then automate it, a process that enforces discipline and encourages us to ignore short-term noise and capitalize on long-term trends,” said Brian Barnes, CEO of M1 Finance.
One of the newest robo-advisor platforms to hit markets, M1 Finance, offers a unique twist to the fintech landscape. Recently showcased at NYC Finovate, M1 Finance brands itself as being geared toward an engaged investor. No passive questionnaires or blind investing here!
What makes M1 Finance stand out in the robo-advising arena is its delicious take on portfolio creation:
- Investors create pie charts to visually design their portfolios.
- Investors can customize up to 100 slices of pie to include EFTs, stocks, or even other pies.
- The visual nature of this platform makes it easy to see that your investing style is reflected in the investment options you have chosen.
For investors not sure where to start, M1 Finance also offers pre-made pies to choose from. These pre-designed pies are also fully customizable, so you never need to worry about being locked into an investing plan that does not work for you.
Step-by-Step M1 Finance Experience
Before you decide to sign up for an automated investment advisor, you need to understand exactly what you’re in for. Here’s where you learn how M1 Finance works.
Without even a login, you can check out many of the pre-made portfolios.
Abby – A Conservative Investor
Meet Abby, a 28-year-old marketing scientist.
Abby wants to invest outside of her 401(k), and grow her wealth for future goals. But Abby doesn’t know where to begin. She needs guidance and doesn’t want to set up investment pies on her own.
Abby considers herself a moderate investor, not afraid of a small amount of risk, but doesn’t want her portfolio tank 20% after the next market crash. She might use the M1 Finance money for a home down payment in 5+ years and doesn’t want an overly risky mix.
In choosing a pre-made pie, she visited the Explore our Portfolios tab to look at the drop-down menu of categories of premade portfolios:
The M1 Pre-Made Investment Categories:
- General Investing
- Fixed Income
- Hedge Fund Replication
- Index Tracking
- Stock/Bond Split
Abby chose the General Investing Portfolio.
Next, she selected her risk category from the following choices:
- Ultra Conservative
- Moderately Conservative
- Moderately Aggressive
- Ultra Aggressive
Abby decides to invest in the Moderate portfolio.
The Moderate choice is for investors with a moderate risk tolerance or a medium time horizon. Here’s how her money is invested for the General Investing Category in the Moderate risk level:
M1 Finance Pre-Made Moderate Portfolio
Investment Category Symbol Percentage Investment U.S. Total Bonds BND 22% Developed Market Stocks VEA 18% Large U.S. Stocks VOO 17% Small U.S. Stocks VB 13% Corporate Bonds VCIT 11% Municipal Bonds MUB 05% Short Term Treasury Bonds SHY 05% Emerging Market Stocks VWO 04% International Bonds BNDX 04% Real Estate VNQ 01%
Abby appreciates that she can choose her own risk level. Some other robo-advisors create riskier portfolios for younger investors, and that didn’t seem right for her.
Jason – An Aggressive Investor
Jason is a risk taker, with a high paying job. He’s 35 with a well funded 401(k) account at work. He wanted to try one of the risker portfolios. He decided to try a Hedge Fund Replication portfolio.
The Hedge Fund Replication Portfolios include the following portfolio management company choices:
- Berkshire Hathaway
- Coatue Management
- Green Light Capital
- Icahn Capital
- Paulson & Company
- Pershing Square Capital Management
- Tiger Global Management
- ValueAct Capital
Jason decided to invest a few thousand dollars in the Pershing Square Capital Management fund. The Pershing portfolio seeks to replicate Pershing Square Capital Management by investing in the holdings and allocation in the firm’s most recent SEC 13F filing. The securities in this pie are:
M1 Pre-Made Hedge Fund - Pershing Square Capital Management
|Investment Holding||Symbol||Percentage Investment|
|Restaurant Brands International Inc.||QSR||22%|
|Chipotle Mexican Grill Inc.||CMG||18%|
|Mondelez International Inc.||MDLZ||17%|
|Air Products and Chemicals Inc.||APD||09%|
|Howard Hughes Corporation||HHC||17%|
|Platform Specialty Products Corporation||PAH||07%|
|Valeant Pharmaceuticals International||VRX||05%|
|Nomad Foods Limited||NOMD||05%|
Jason decided to move on and create another pie. This time he’s choosing his own investments.
He appreciates the opportunity to create an infinite number of pies.
It’s a good idea to check out the Explore tab on the M1 menu bar to see for yourself the variety of available pre-made pies based on various criteria. You can look at all of the pre-made investment options before setting up an account.
Try M1 Finance Before You Buy
If you want more detailed information, tailored to your personal situation, you can create an account and set up various portfolios before funding the account. That way, you know what you’re going to invest in before spending a dime. Very smart!
Jason and Abby’s portfolios are available from the explore tab. Our next user was Julio, who was looking for a retirement portfolio. Julio wants more detail on his retirement portfolio.
Julio – Facing Retirement Soon
Forty-nine-year-old Julio is planning to retire at age 67, in 2035. So, he decided to investigate the M1 Finance retirement choices.
On the home page, Julio put in his email address and created a password.
After signing up he chose from 3 investment goals.
The initial investment options include:
- General investing
- Saving, for capital preservation.
He selected the retirement goal. This choice automatically updates as you reach your retirement goal.
He used the slider to select 2035 as his targeted retirement date.
Next Julio chose a moderate risk level. The 18 ETFs that were selected spanned the investment classes including bonds, stocks, and a commodity fund across the investment spectrum. There were value and growth stocks including large, small and mid-cap sizes. The bonds spanned government offerings to long term corporates. The diversified portfolio includes U.S. and international holdings.
Abby, Jason and Julio demonstrated how to use three of the many pre-made M1 Finance portfolios. Yet, there’s more to M1 Finance than offering pre-made or create-your-own investment portfolios.
Here’s another feature of the M1 Finance platform.
M1 Finance – Built-In Rebalancing
Whether you design your own or choose a pre-designed pie, the platform makes it visually clear which of your investments are off-target by changing the shape of the slice of pie. When new money is added or withdrawn, it automatically affects the section of your pie that is most off-target in order to rebalance itself. For example, if you want 50% of your investments to be stocks-based, but you are only at 48%, then any new money that you add to your investment portfolio will automatically go to that portion of the pie.
A recent Barron’s article compared M1 Finance’s industry lists to those of Motif by showcasing the largest 20 companies in each sector. Further, if the investor wants to cut the ETF fees, she can restrict her pie to just stocks and create her own fund, sans management expenses.
For those investors who want to be more hands on-users can also rebalance the pie themselves with a few clicks of the mouse.
How Much Does M1 Finance Require to Get Started?
Unlike many other robo-advisors, M1 only requires $100 to get started!
What Does M1 Finance Cost?
The fee structure is among the lowest in the robo-advisory sphere.
The first $1,000 is managed for free.
Accounts valued up to $100,000 charge a competitive 0.25% on assets under management.
As your account grows, the fee drops to 0.15% for accounts valued at more than $100,000.
The fee remains the same regardless of the complexity of your portfolio or the number of trades that you make.
There are additional fees for retirement accounts, closing your account, wire transfers and other services.
As discussed in our FAQ section, every underlying exchange traded fund levies its own fees. Yet M1 Finance does not receive any of these fees, they are paid to the fund creators and managers.
Types of Available Accounts
M1 Finance caters to individuals and business accounts. The company also handles trust accounts.
Available M1 Finance accounts:
- Individual and joint investment accounts.
- Roth and traditional IRA accounts
- Business accounts for corporations, LLCs, or partnerships
- Revocable and irrevocable trust accounts
Is My Money Safe at M1 Finance?
Apex Clearing Corporation is M1’s clearing firm and custodial bank. Apex is a well-known firm and provides similar functions for many of the world’s largest institutional and retail brokers. M1 employs top level security. Your data isn’t stored on any device and all information is encrypted in transit between your computer and M1 as well as on the M1 servers.
M1 Finance Pros and Cons
M1 Finance Advantages
The fees are extremely competitive with the 0.25% charge for accounts up to $100,000. The management charge is among the lower AUM fee of all robo-advisors.
The $100 minimum investment amount makes it easy for the new investor to dip her toe into the markets.
The visual structure of the pies makes it easy to understand what you’re invested in.
Adding money to your account is clear cut. The platform invests new money according to your asset allocation preferences.
The automated portfolio rebalancing makes investment management easy.
M1 Finance Disadvantages
In contrast with other automated or robo-advisors, M1 Finance doesn’t offer a risk quiz. This could be a disadvantage to a newer investor. Thus, if you’re not confident of your personal risk tolerance, you might seek an online risk tolerance quiz for guidance.
Regarding the Hedge Fund Replication choices, M1 invests in the publicly listed securities of the specific fund. Yet, you don’t know the price that the hedge fund manager paid for their holdings. And part of smart investing is buying at the right price. This option is best for only the most aggressive investors.
M1 doesn’t offer tax loss harvesting, unlike several competitors.
Goldilocks Approach: Not to Hot, Not too Cold
You choose how engaged you want to be with your portfolio management. From pre-made pies to DIY investment pie creation, you decide which investment road to take.
M1 Finance is great for on-the-go portfolio management with apps for ios and android devices.
M1 Finance is user-friendly, so once your initial portfolio is set up it is easy to manage. Just like a bank account, investors only need to worry about depositing or withdrawing money; the platform itself takes care of the trading and the money gets allotted to your pre-determined specifications.
Even with a fully customizable platform, some people worry about the human touch some robo-advisors lack. M1 Finance has a customer support team available during business hours, so if their extensive FAQs can’t answer your questions, a real human can.
M1 Finance Review – Takeaway
One thing that M1 Finance repeats often is that the money you are investing is your money, so it should be working for you. The company reinforces this over every aspect of its design: the customizable pie-chart investments, low fees, ability to withdraw most of your funds by the next business day, and extremely user-friendly designs.
M1 Finance offers a promising alternative to other investing options out there. If you’re stuck between a DIY approach and a fully automated robo-advisor, then M1 is a nice in-between solution. In particular, this platform adds depth and customization to the robo-advising market. Engaged investors, who want hands-on and easily accessible investing options, will find that M1 Finance has a lot to offer.
If you’re sophisticated enough to know what you want in your investments, but don’t want to constantly rebalance and maintain your investment portfolio, I think M1 Finance is a good alternative. (Click on the link to check out M1 Finance.) We’re all so busy today, that you need to pick and choose how you’ll spend your time. If you like to pick your investments, and seek investing inspiration as well, then you might consider M1. With the low $100 entry fee, anyone can dip their toes into the investing world.
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.