In recent years, robo-advisors have become increasingly popular for investing platforms thanks to their low-cost, easy investment options compared to traditional stocks and shares trading.
Traditional financial services often charge about twice as much in management fees, anywhere between $9.95 to $50 in trading fees.
They insist that you purchase at least 100 shares when investing in the stock market, which is why the.
This is when robo-advisors appeal the most, with smaller management fees, fee-free trading, and the ability to trade with smaller share amounts.
Another main draw of robo-advisors is that you don’t need extensive financial knowledge to start investing — the tough investment decisions are made based on software algorithms cross-referenced with your financial goals and risk tolerance level.
The main decision you may face when it comes to robo-advisors is choosing one from many options.
In this article, we’ll help you decide if M1 Finance is the robo-advisor for you by looking at the services the company offers.
What Is M1 Finance?
M1 Finance is a robo-advisor, broker dealer, and financial services company that was founded by Brian Barnes in 2005.
In December 2017, it stopped charging fees, and by March 2019, it was managing $500 million in assets and growing by $3 million a day.
Besides investment opportunities, M1 Finance allows customers to borrow funds and will soon offer a checking account and debit card.
The company is headquartered in Chicago, and it’s a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).
As a member of SIPC, securities in accounts are protected up to $500,000, while an FINRA membership means you can be assured it complies with strict rules that require it to deal fairly and honestly with its customers.
M1 Invest: Investment Options With M1 Finance
Opening an investment account with M1 Finance will give you the opportunity to easily grow your investment portfolio through two different investment strategies.
Remember that M1 Finance doesn’t charge any management fees or commissions for investing with them.
Depending on your level of financial experience and risk tolerance, you can choose to make use of their automated investing service (also called “Pie investing” at M1 Finance) or invest in individual stocks or exchange-traded funds (ETFs).
Pie Investing
Pie investing with M1 Finance is similar to investing in mutual funds (which is not an option with M1 Finance), because you can diversify your portfolio based on portion allocations.
A Pie is a collection of up to 100 slices where any slice is a stock, ETF, or another Pie.
A portfolio is a collection of one or more Pies.
You can create a “custom Pie” by picking and choosing your own stocks and funds, or choose from more than 80 expert Pies especially curated for those with little financial knowledge or time.
Options within the expert Pies include General Investing (with the ability to custom your risk tolerance), Responsible Investing, and Hedge Fund Followers.
Once you’ve built your portfolio, M1 will automatically put your money to work.
M1 Finance also offers automatic rebalancing and dividend reinvesting to ensure your portfolio stays on track.
That means you can add $500 to your Pie, and M1 Finance will rebalance your account to maintain your target asset allocation without any manual calculations on your part.
You can even automate your investing by scheduling recurring deposits to align with your paychecks, or contribute $100 each week to max out your IRA contributions.
However, all of this automation doesn’t mean that you’re completely hands-off when it comes to your own investments.
Not only can you check your account balance when you log into your account, but you can also change your investment allocations.
This is easily done via the M1 Finance website or mobile app, available for Android phone users via Google Play and Apple phone users via the App Store.
Investing in Individual Stocks and ETFs
If you have a bit more financial experience, you can set up a brokerage account and your own portfolio and make your own decisions about which stocks and ETFs to invest in.
The great thing about M1 Finance compared to other traditional brokers is that you can buy fractional shares.
Whereas most brokers will insist you buy a whole share (and usually in lots of 100), M1 allows you to purchase just a fraction of it, making it less cost-prohibitive and easier to diversify your investments.
This also means that even a penny left in your account could be invested in a fractional share.
Tax-Efficient Investing
To help you minimize the amount owed on taxes, M1 Finance uses a lot allocation strategy when selling securities.
So when you request a withdrawal from your M1 account, their algorithm will determine which securities to sell based on target allocations.
Securities are sold in the following order and then transferred into your bank account:
- Losses that offset future gains
- Lots that result in long-term gains
- Lots that result in short-term gains
Types of Accounts
M1 Finance offers four different types of accounts to fit your needs:
- Individual account
- Joint account
- Retirement account
- Trust account
Bear in mind that unlike other online investment services such as Betterment and Wealthfront, M1 Finance doesn’t offer tax-loss harvesting, which focuses on minimizing any capital gains taxes you may incur on your investing portfolio.
M1 Borrow: Low-Interest Loans From M1 Finance
M1 Finance gives you the ability to take out a flexible portfolio line of credit, using your investment holdings as loan collateral.
You can borrow money at any time at one of the lowest interest rates on the market: 4.25%.
(It’s 4.00% if you have an M1 Plus membership — more on that later.)
Traditionally, you need to sell securities in order to use any of your invested funds.
This means you may incur substantial tax consequences on top of the lengthy paperwork and lengthy approval process that usually comes with borrowing money.
With M1 Borrow (part of M1 Finance’s package of services), however, you can instantly borrow up to 35% of your account balance, and they promise that applying for a loan means there’s no additional paperwork, no credit checks, no loan officers, and no denials.
However, you need a taxable brokerage account with at least a $10,000 account balance in order to qualify for M1 Borrow.
Those with more than $10,000 in eligible taxable accounts are automatically given a line of credit, and you’ll only be charged if you use it and for how much you use.
You can also choose to keep the loan in M1 Finance or transfer it to your bank account.
Most people make use of M1 Borrow to fund a major purchase (such as a car or a down payment on a dream home), refinance existing debt (such as a mortgage, student debt, or personal loan), and to invest more on M1’s investment platform.
M1 Spend: Shopping Made Easy With M1 Finance
M1 Spend is a soon-to-be-released new feature by M1 Finance.
It’s an online checking account that’s integrated directly into the M1 app, allowing you to make direct deposits, pay bills, and spend using a Visa debit card.
There’s a $0 minimum account balance.
If you have an M1 Plus membership, it even covers your ATM fees four times a month (once per month on the standard M1 account), offers a 1.5% annual percentage yield, or APY, (which is 25 times above the national average APY for a checking account), and a 1% unlimited cash back on all purchases made with the M1 Spend debit card.
There’s never been a better excuse to go shopping.
One of the biggest advantages of an M1 Spend account is the quick and easy ability to transfer funds between it and your M1 investment accounts.
Your funds are held by Lincoln Savings Bank, a member of the Federal Deposit Insurance Corporation (FDIC), which means deposits are insured up to $250,000.
M1 Plus: More Perks From M1 Finance
In yet another soon-to-be released feature, you can upgrade to M1 Plus to take advantage of certain perks for a special annual rate of $100 (it’s normally $125).
On top of the benefits mentioned above, being an M1 Plus member provides you with even more investing options as you get exclusive access to a second trading window.
Take the Guesswork out of Investing
Thanks to a combination of the personal finance tools M1 Finance offers and their low-to-no fees, it’s worth considering opening an M1 Finance account if you’re looking at ways to increase your wealth.
As a robo-advisor, they help to remove much of the investing guesswork, and being able to choose from more than 80 Expert Pies gives you access to expert financial advice and knowledge without a great amount of cost.
When M1 Spend and M1 Plus finally launches, M1 Finance may become a one-stop hub for your finance needs.
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