The Complete M1 Finance Review – Revolutionizing Robo-Investing

One of the biggest reasons I hear for not investing is “I don’t have enough money”. As it turns out, that’s no longer a legitimate reason! M1 Finance is an investment service that lets you open an account with no money at all, then begin investing with just $100 in your account.

Why else should you invest with M1 Finance?

  • It’s a robo-advisor, but one that allows you to choose the investments in your portfolio – called “pies” – and even make adjustments later on.
  • You can invest in both individual stocks and exchange-traded funds (ETFs).
  • You can choose the investments in your pies, or select from dozens of prebuilt pies.
  • M1 Finance charges no trading commissions.
  • Unlike most other robo-advisors, M1 Finance has no annual management or advisory fee to cut into your investment returns.
  • You can buy fractional shares in your pies so that you can hold a $10 slice of a $1,000 stock.

Interested? You should be!

M1 Finance is a robo-advisor, but it may be the next step forward in robo-investing. It works like a robo-advisor in that it provides automated account management, like automatic rebalancing and dividend reinvestment.

But it also allows you to select the investments you’ll hold in your account, giving you a mix of self-directed and automated investing.

It may disrupt the robo-advisor world in much the same way the robo-advisor concept has disrupted the investment universe.

About M1 Finance

Founded in 2015 and based in Dallas, Texas, M1 Finance is a unique robo-advisor, one which will work for a lot of investors who like the robo-advisor concept but want more direct control over their investments.

M1 Finance gives you both. You choose the investments in your portfolio – or several portfolios you can build – based on predetermined investment templates.

These are referred to as “pies”, each of which is a self-contained portfolio.

You can create several different pies to include in your account. Some pies are prebuilt, but others can be built from the ground up.

The robo-advisor side of M1 Finance is based on Modern Portfolio Theory (MPT), which is true of all robo-advisors, meaning once you select a pie, or create one, it’s then fully managed by M1 Finance. It will be rebalanced regularly to maintain the target allocation of the pie.

M1 Finance doesn’t actually hold your portfolio.

Instead, they’re held with Apex Clearing Corporation. Apex acts as both the clearing firm and custodial bank.

M1 Finance Basic Accounts

M1 Finance offers two accounts, Core M1 Account and M1 Plus Account. The basic features of each account are as follows:

Each account type enables you to invest commission-free. Each also enables you to borrow up to 35% of your portfolio’s value with no paperwork and no payment schedule. If your account balance is $20,000, your credit line will be up to $7,000. The credit line is referred to as M1 Borrow.

The main difference between the two account types is that Core M1 has a credit line interest rate of 3.5%, while M1 Plus is just 2%.

If you take advantage of M1 Borrow, be aware you will be subject to a “maintenance call” to add more funds to your account if your amount borrowed falls below 30%. That can happen if your portfolio declines in value.

But the Spend feature may be the most interesting part of either plan. M1 Finance is beta testing a checking account with a debit card. For the Core M1 account, the checking/debit feature will have no fees, and will even cover one ATM fee per month.

M1 Plus also comes with a debit card, but you’ll earn 1% in cashback when you make purchases using the debit card, as well as 1% on any uninvested balances. You’ll also be covered for four ATM fees per month. Both account types are or will be covered by FDIC insurance.

The basic features of the two accounts are as follows:

How M1 Finance Works

M1 Finance departs from traditional robo-advisors in several important respects:

  • You don’t need to complete a questionnaire upfront to establish your risk tolerance.
  • As mentioned above, you select your own investments.
  • You can select between both ETFs and stocks, so you are not limited to ETFs alone.
  • You can change your investment choices at any time.
  • Several portfolios can be included in your account, allowing you to create portfolios for multiple investment purposes.
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The M1 Finance methodology works based on what they refer to as “pies,” with different types of pies available. “Expert Pies” are predetermined, and will be recommended for you, each designed to help you reach a specific goal.

M1 Finance offers more than 60 expert pies. Each is typically made up of between seven and nine ETFs. They’re usually Vanguard funds, which have some of the lowest expense ratios in the industry. You can also create custom pies, which can be built with ETFs and stocks of your choosing, but within the framework of investment templates.

Each pie can contain as many as 100 “slices,” with each slice being either an ETF or a stock. A slice can also be another pie – that’s how much flexibility the platform provides.

With custom investment selection, your choices aren’t unlimited.

There are a couple of limitations:

  • First, you cannot invest in mutual funds.
  • Second, stocks must be selected from either the New York Stock Exchange, NASDAQ, or the BATS system.

That may seem like a limited investment selection, but part of how M1 Finance is able to keep no-fee investing is by limiting your choices. They specialize in stocks and ETFs only. If you want to hold other investments, like penny stocks, options, mutual funds, or cryptocurrencies, you’ll have to go with another investment platform.

As you add funds to a pie, M1 Finance will go into robo-advisor mode and invest the funds within the scope of the desired target allocations for that portfolio.


M1 Finance provides rebalancing, but they work a little differently from other robo-advisors. Generally speaking, rebalancing is not automatic – you have to initiate it. And when it happens, it may require the sale of investments that may generate taxable transactions.

Instead, they use a rebalancing system referred to as Dynamic Rebalancing. That’s where new cash into your account is used to help rebalance your portfolio. The process has two advantages:

  1. It enables you to buy a larger number of the lower-priced investments in your pies and
  2. minimizes the need to generate taxable sales by reducing positions where you’re overweight.

This isn’t the typical rebalancing methodology used by robo-advisors, but I like the advantages you get from the process.

Dividend Reinvestment

M1 Finance is totally flexible here. As dividends are paid they’re put into your cash account. You’ll set what they refer to as a cash control threshold, that will set the dollar amount of your reinvestment. You can choose any amount for the threshold – or even choose not to reinvest dividends at all.

But if you don’t make a choice, the threshold will automatically be set to $10. Each time dividend contributions your cash account reaches $10, the funds will be transferred to your pies and distributed according to your target allocations.

Drilling Down Deeper on M1 Finance “Pies”

When you decide on a pie – expert or custom – you’ll be able to set percentage allocations for the pie. Those allocations will be maintained as you add or withdraw funds from your account.

The company gives an example of a portfolio invested in the so-called FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google).

If you choose this pie you can go with an even allocation between each of the five stocks, at 20% each. But you can also change the allocation within the pie.

For example, if you want 35% each in Google and Amazon, you’ll then have 10% each in Facebook, Netflix, and Apple.

You can also create pies based on market sectors. This can include socially responsible investing, healthcare, utilities, and even foreign countries. In fact, you can create an unlimited number of pies within your account.

When you first open your account, you can establish investment allocations.

For example, when you contribute $1,000 you can set how much will go into investments, and how much will be held in cash. This will enable you to minimize cash drag (uninvested funds that earn no investment income).

One of the features with M1 Finance I really like is that not only can you set the allocations in your pies but you can also make changes at any time. That’s another feature that’s not offered by most other robo-advisors. It gives you the ability to customize your pies anytime your investment objectives or risk tolerance changes.

It’s another example of how M1 Finance combines the best of self-directed investing with robo-advisor management.

M1 Finance Tax Considerations

One other area where M1 Finance departs from many robo-advisors is that they don’t offer tax-loss harvesting.

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But they do use a tax lots strategy when securities are sold. It works to reduce the capital gains taxes you’ll pay.

M1 Finance uses an algorithm to determine which securities are sold when you withdraw funds from your account.

The priority works as follows:

  1. Losses that offset future gains.
  2. Lots that result in long-term capital gains (to get lower tax rates on long-term capital gains).
  3. Lots that result in short-term capital gains (done as a last resort, since these gains are taxable at ordinary tax rates).

How Does M1 Finance Make Money if they Don’t Charge Fees?

This is a question I always ask when any service is free – I think most people naturally do. After all, if the service is free, you have to wonder how long it’ll hang around.

As it turns out, M1 Finance makes money without charging fees to investors. Instead, they make money lending out securities for short sales (which you can’t do on this platform), and for margin loans to M1 Finance investors. Both pay interest, which generates the revenue to the company.

This is a common practice in the investment industry and a major reason why M1 Finance doesn’t charge fees to its investors.

M1 Finance Features

M1 Finance offers users several notable features:

  • Advisory fee: M1 Finance does not charge fees. The absence of fees can add up to tens of thousands of dollars over many years of investing activity.
  • Accounts available: Individual and joint taxable accounts; traditional, Roth, rollover, and SEP IRAs; trusts.
  • Minimum initial investment: $0. However, they require at least $100 to begin investing, or $500 for IRA accounts.
  • Automatic dividend reinvestment: Once dividends received in your account reach $10 they’re automatically reinvested.
  • Mobile Access: M1 Finance is available for iOS and Android apps, and can be downloaded at Google Play or The App Store.
  • Tax information exporting: M1 Finance can export investment results to TurboTax and H&R Block.
  • Customer service: Available by either phone or email, Monday through Friday, 9:00 AM to 5:00 PM, Central time.
  • M1 Finance retirement accounts: You can open traditional, Roth, SEP, and rollover IRAs with M1 Finance. If you need to do a SEP account, M1 Finance can accommodate the account only for you as the business owner, but not any employees you may have. If you need to do a rollover from an employer-sponsored plan, M1 Finance offers a concierge service that will help you handle the transfer.
  • Account protection: Funds held with M1 Finance are covered by SIPC for up to $500,000 in cash and securities, including up to $250,000 in cash. This coverage protects against broker failure, but it doesn’t cover losses resulting from declines in market value. M1 Spend accounts will be covered by FDIC insurance for up to $250,000 per depositor.
  • M1 Finance Referral Program: You can get $10 to invest each time you refer a friend who signs up for M1 Finance, and so will your friend. You’ll be given a unique link on the M1 Mobile App that you can share with friends by email, text, or social post.

How to Sign Up For an M1 Finance Account

If you want to open an account with M1 Finance, you’ll need to meet the following qualifications:

  • You must be either a US citizen or a permanent US resident (green card holder).
  • You must be at least 18 years old.
  • And you must have a current US mailing address.

If you meet the qualifications, M1 Finance has a very clear and quick setup process:

1. Build a Portfolio

This is where you’ll choose your risk level, then either select from prebuilt pies or create your own. If you create your own, you’ll need to choose the individual investments, which will be either stocks or ETFs. That will start by selecting your allocations.

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Once you decide on your portfolio allocations, you can choose the funds and stocks you want to hold in your pies, at least if they’re custom-designed pies. The platform provides descriptions of each fund and stock available, complete with plenty of information and multi-year performance records.

2. Open Your Brokerage Account

You’ll choose an individual or joint taxable account, a trust, or a retirement account. You’ll need to complete basic information, as well as supply financial information, like your income, net worth, liquid net worth, and other information. They’ll also ask you questions to help determine your investor profile. There are seven different investor profiles, ranging from ultra-conservative to ultra-aggressive. You can choose the one that best fits your investor profile.

3. Fund Your Portfolio

This is where you’ll choose the bank you’ll link to the M1 Finance account for funding purposes. There are hundreds of banks in the database, and you can add your bank if it’s not there. You’ll need to log into your bank account from the M1 platform, then link it to your account. When I opened my account it took two business days for the funds to transfer. You can set up either a one-time transfer or recurring transfers.

M1 Finance Advantages and Disadvantages

M1 Finance Pros:

  • There are no fees to use M1 Finance. They don’t even charge trading fees.
  • You can choose the portfolios (pies) you invest in.
  • Pies can contain ETFs and individual stocks, which is unlike the way most robo-advisors work, investing in ETFs only.
  • No initial deposit is required to open an account, though you do need at least $100 to begin investing or $500 for an IRA account.
  • Because M1 Finance permits the use of fractional shares, you can build pies with small amounts of money. This makes it easier to diversify a small pie with different stocks.
  • M1 Borrow enables you to borrow against your account at interest rates well below market rates.

M1 Finance Cons:

  • Mutual funds are not available for constructing pies.
  • No tax-loss harvesting is offered, which could potentially lower your capital gains tax liability. This is fast becoming a common feature with robo-advisors.
  • Since you can create an unlimited number of pies, you run the risk of over-diversifying your account.
  • Though you can include stocks in your pie investments, you can’t use M1 Finance to trade securities. It is, after all, a robo-advisor.

Why You Should Open an Account with M1 Finance

M1 Finance is almost unique among robo-advisors because you have so much control over the investments in your account.

It’s a robo-advisor, and it manages your account just the way a robo-advisor does, but you have greater investment control than on most competitors.

It’s virtually a mix of robo-advisor and self-directed investing. It may be the next level up in the evolution of robo-advisors.

You don’t even need any funds to open the account (though you’ll obviously need money in the account to begin investing).

And as your account grows you can take advantage of M1 Borrow to access at least some of your account balance as a low-interest loan.

M1 Finance is a great choice for small investors especially. You’ll have the option to use prebuilt pies if you’re not comfortable making your own investment choices. But as you gain confidence, you can begin building your own. Also, the ability to use fractional shares means you can create a portfolio holding slices of high-priced stocks in a pie even with a very small total investment.

But M1 Finance won’t be a good choice for short-term traders, especially day traders. The platform doesn’t have the kinds of investment tools and resources for that kind of trading. As well, M1 Finance isn’t set up for short-term trading. It also won’t accommodate investments like mutual funds, options, cryptocurrencies, penny stocks, and other less common investments.

If you’d like more information, or you’d like to sign up for the service, visit the M1 Finance website.

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