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M1 Finance Review – Start Investing for Free

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M1 Finance Review (+ How to Start Investing for Free)Investing doesn’t require special skills or expensive software. M1 Finance is a free investing app that makes it easy for anyone to invest. You can invest small amounts of money into most stocks, ETFs (exchange-traded funds) and index funds.

Both new and experienced investors may find M1 Finance intriguing. You can buy fractional shares of stocks and ETFs without paying a trade fee. This can make it easy to save for retirement by investing in low-cost index funds while having the flexibility to be a DIY investor.

I use M1 Finance as a fee-free way to buy fractional shares of my favorite stocks and ETFs. You can invest as little as $25 at a time.

This M1 Finance review will help you decide if this is the best online brokerage for you.

What is M1 Finance?

M1 Finance launched in 2016 as a fee-free investing app. At the time, most stockbrokers charged at least $4.95 per trade. As of April 2020, it has over $1 billion in assets under management and is one of the most popular free investing apps.

M1 Finance offers three different services:

  • Invest: Investment account
  • Spend: Online checking account
  • Borrow: Portfolio line of credit

M1 Finance gets its name from the term M1 money supply, which means the paper money and coins people use for daily spending.

True to its namesake, it is an affordable and easy way to invest in almost any stock or ETF trading on the US stock market.

It lets you invest in these types of assets:

  • Individual stocks
  • Index fund ETFs that track an index such as the S&P 500, etc.
  • Sector ETFs that invest in the stocks and securities of a specific industry or sector
  • Bond ETFs that just invest in bonds
  • Pre-made portfolios

Investors who want to invest in both stocks and ETFs without paying trading fees can benefit the most from M1 Finance. And “Hands-off” investors who only want to buy index funds or pre-made portfolios can avoid the advisory fees that robo-advisors charge.

Day traders, on the other hand, won’t benefit from using M1 Finance. This is because M1 has a narrow daily trading window. Also, M1 fills all orders at the market price.

You can access M1 Finance using their mobile app or online website. All buy and sell orders execute during a morning trading window that starts at 10 am Eastern Standard Time.

“Plus” members ($125/year) can also submit orders with an afternoon trading window.

Who Can Join M1 Finance?

It’s open to US residents who are at least 18 years old. Custodial accounts are not available.

M1 Finance Fees

It’s free to join (with one daily trading window), and you don’t pay trading fees to buy or sell investments.

There are no other fees unless you close your account and transfer the account to another broker. You pay $100 to transfer your account to a different broker (other brokers charge a similar fee). There are no account maintenance fees. You will pay a fee for paper statements (like Vanguard) but you don’t have to opt-in to paper statements. M1 automatically sends you electronic trade confirmations and monthly account statements.

Upgrading to M1 Plus costs $125 per year and gives you access to more features. Two key benefits include a second daily trading window and an online checking account. The M1 Spend checking account is only available with the option M1 Plus plan.

(As always, please see their website before signing up to make sure nothing has changed since this article was last updated.)

Mobile App

You can download the iOS or Android mobile app for your phone or tablet. The mobile app has full functionality and is easy to use.

If you prefer accessing your account from a computer, the web browser website is easy to use as well.

Getting Started with M1 Finance: Step-by-Step

It only takes a few minutes to join M1 Finance. Here’s what the onboarding process looks like.

Step 1: Go to the M1 Finance home page

Go to the M1 Finance homepage.

Step 2: Click the “Get Started” Button

From the M1 Finance homepage, click the “Get Started” button in the top-right corner.

Screenshot of the home page with a red arrow pointing to the get started button

Step 3: Create your M1 Finance account

Enter your email address and password and then click Sign Up Now to create your M1 Finance account.

Signup screenshot with arrows pointing to email address and password fields

This primary account will contain all of your M1 Invest, M1 Spend, and M1 Borrow sub-accounts.

Step 4: Choose which type of M1 Invest account you want to open first

Decide if you want to open a taxable or retirement account, and if it will be an individual or joint account.

Then select the type of M1 Invest account you want to open first and click Continue. (You can repeat this step later to open multiple accounts, and to rollover an existing 401K.)

Screenshot from M1 Finance signup process showing taxable or retirement investing account options

Step 5: Enter your personal details

You will need to enter your personal details such as your Social Security number before you can build your portfolio. M1 Finance also has you link a bank account to fund your M1 Invest portfolio.

While you can open any account with $0, M1 requires an initial minimum balance to start investing.

  • Taxable accounts: $100 minimum
  • Retirement accounts: $500 minimum

Step 6: Build Your Portfolio

After entering your personal info, you can build your portfolio with stocks, ETFs and pre-made portfolios. You can add up to 100 holdings per portfolio pie. M1 lets you create additional pies for advanced customization.

There are two ways to do this. If you’re viewing one position at a time, click “Add to Basket” to place it into your basket:

Screenshot with arrow pointing to Add to Basket button to add this position to your pie

If you’re looking at the list of available stocks to add, tick the checkmark box beside each position name to quickly add multiple positions to your portfolio:

Once you’ve added your positions, click “Add” in the bottom-right corner to place these positions into your investment pie:

You can adjust the target allocation for each position. The total allocation must equal 100% before you click Save:

Screenshot of sample M1 Finance portfolio pie with examples from Vanguard, M1, bonds, and Amazon

Step 7: Transfer Funds into Your Account

Once your cash arrives into your account, M1 will invest the full amount to match your target allocations.

In-Depth M1 Finance Review

Let’s take a closer look at everything M1 Finance offers. All M1 Finance members get a free M1 Invest investing account. Upgrading to M1 Plus lets you open a checking account too.

M1 Invest

M1Finance.comM1 Invest is the cornerstone and is accessible to all users. You can open taxable and retirement investment accounts. You won’t pay trade fees or annual account management fees.

Account Types

You can open these investment accounts on M1 Finance:

  • Individual taxable accounts
  • Joint taxable accounts
  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Trust accounts

M1 Finance Minimum Opening Deposit

Taxable accounts require a $100 minimum balance to start investing. Retirement accounts require a $500 balance.

M1 Finance invests your cash once you choose the initial positions for your portfolio.

Subsequent Investments

Your account cash balance must be at least $25 to buy shares at the next trading window. M1 will invest at least $1 into each buy order. M1 decides how to invest the cash according to the current dynamic rebalancing needs.

For example, if you invest $25 a week and have multiple holdings, M1 may invest your money differently each time. This investing method is a little confusing at first because most broker’s auto-invest feature only lets you invest a fixed dollar amount into the positions you choose.

If you only have one position, the entire amount goes into that one position.

Auto-Invest

You can schedule recurring deposits from your bank account on a weekly, biweekly or monthly basis. M1 can automatically invest your cash balance at the next trading window.

Trading Windows

The free plan of M1 Invest has one daily trading window. The window opens each day the New York Stock Exchange (NYSE) at 10 am Eastern. You should submit your buy and sell orders before the window opens to ensure they fill for that trading day. If you submit your orders after 10 am when the window opens, your order likely won’t fill until the next trading day. This is because M1 submits all the orders when the trading window opens.

The morning window closes when M1 fulfills all trades. The exact speed depends on the order volume. It can take longer for the window to close on busy market days. I normally get my trade confirmations around noon EST. The most important thing is to get your orders in before the trade window opens and M1 handles the rest.

M1 Plus members also have access to an afternoon trading window at 3 pm Eastern. This second trading window can beneficial for active investors. The afternoon trading window ends before the market closes at 4 pm EST. M1 doesn’t specify when the window closes, but they don’t do any trades in the extended market hours when there is less liquidity and a less favorable bid-to-ask price spread.

Filling Buy and Sell Orders

At each trading window, M1 first executes any open sell orders you have. M1 then uses the sale proceeds and your current account cash balance to buy shares.

M1 buys and sells all shares at the current market price. It can take several hours for your trade to complete. You will see the final share price once the trade executes.

Not being able to lock in a price isn’t a drawback for long-term investors. However, frequent traders who must buy or sell at a specific share price should avoid M1.

Smarter Investing: M1Finance.com

Investment Pies

M1 Invest has you create a self-directed investment portfolio they call a “pie.” Each stock, ETF, or pre-made fund you add to the pie is a “slice.” You can have up to 100 slices per pie.

These phrases can feel slightly confusing at first but it’s easy to build your pie.

You can make custom pies that you can add as a slice to your main portfolio pie. You may do this if you want to hold than 100 holdings or want a separate pie for different strategies.

For example, you might subscribe to several investing newsletters and want separate pies to track each newsletter’s model portfolio.

Asset Allocation

What makes M1 different than other online brokers is how you assign your portfolio asset allocation. M1 has you assign a target percentage to each pie slice. This method is similar to what robo-advisors like Betterment or your 401k provider use.

You assign a percentage for each stock, ETF, or pre-made expert pie. Your total allocation must equal 100% and each pie slice must have a target allocation of at least 1%. This approach can make it easier to maintain a balanced portfolio.

Most brokers don’t require you to assign a percentage to each portfolio holding. If you’re not in the habit of self-balancing your portfolio, it can be easy to have a portfolio that’s too risky.

For example, you may decide to invest the full $100 into one stock with other do-it-yourself investing apps. But if you invest $100 into your M1 Invest account, M1 may invest in tiny portion into each pie slice.

Fractional Shares

Being able to buy fractional shares of stocks and ETFs is one reason why M1 Finance is so popular. Only a few traditional or discount brokers offer fractional investing, and most of the other micro-investing apps charge a monthly account fee or trade fees.

For example, if you can only invest $100 but a single share costs $200, you can buy half a share.

Fractional investing makes it easy to diversify your portfolio with small amounts of money. It’s also easier to maintain your target asset allocation.

Dynamic Rebalancing

Investors with multiple slices will experience “portfolio drift” as some holdings perform better than others. You must rebalance your portfolio to maintain your target asset allocation.

The easiest and most cost-effective way is with dynamic rebalancing. M1 automatically invests your new money into the slices that are below their target allocation. Buying additional shares doesn’t cause a taxable event like selling shares to rebalance does.

You can also manually rebalance your pie each trading window. In this case, M1 sells the portion of your assets above their target allocation and buys the laggards. You should manually rebalance sparingly as each sell is reportable on your tax return.

The downside to manually rebalancing can be a thick stack of tax forms if you sell often. Your tax prep program may require an itemized history the shares you trade to calculate your taxable investment income (or losses). TurboTax can auto-import your tax forms from M1.

Smarter Investing: M1Finance.com

No Tax-Loss Harvesting

Because M1 Finance isn’t a robo-advisor, you won’t get automatic tax-loss harvesting. However, you can open a traditional or Roth IRA to enjoy tax-advantaged investing.

Auto-Invest

You can manually transfer new funds when you’re ready to buy more stock. M1 Finance also offers free auto-investing so you can dollar cost average each month.

It possible to schedule recurring weekly, biweekly and monthly investments.

Dividend Reinvestment

M1 doesn’t reinvest dividends into the same stock (i.e., DRIP). Instead, M1 deposits the dividends into your cash balance for dynamic rebalancing. The dividends invest once your cash balance reaches $25.

Investment Options

M1 lets you invest in the following assets:

  • Individual stocks
  • Stock and bond ETFs
  • Expert pies created by M1

You won’t be able to trade options or over-the-counter (OTC) individual stocks of foreign companies with a U.S.-listed stock ticker. One reason you can’t buy foreign stocks as an OTC or ADR (American depository receipt) listing is to avoid some of the fees and complexities that brokers enforce.

Also, you can’t “short” stocks or trade options. But you can buy inverse and leveraged ETFs that can have similar results.

Individual Stocks

It’s possible to trade over 3,800 individual stocks that trade on the various US stock exchanges. This is an impressive offering for a micro-investing app. You will see household brands like Amazon or Microsoft. Small-cap companies are also available on M1 Finance.

The only downside is not being able to buy stock for select foreign companies even if they have a U.S.-listed an OTC or ADR ticker. A good example is Nintendo which trades in the US as NTDOY.

You also won’t be able to buy volatile “penny stocks” that have low liquidity. These stocks don’t pair will with the narrow M1 Invest trade window. Not being able to time your entry and exit price makes it hard to profit.

ETFs

There are almost 3,900 ETFs you can invest in on M1 Finance.

Index fund investors have plenty of options. You might choose the well-known Vanguard or iShares “total market” or S&P 500 index ETFs (i.e., VOO) as the bedrock of your pie.

Smarter Investing: M1Finance.com

Other ETFs focus on these investment strategies:

  • Dividend investing
  • Socially responsible investing
  • Commodities
  • Real estate
  • Industry sectors (i.e., banks, industrials, aerospace, etc.)

Aggressive investors may enjoy access to inverse and leveraged ETFs. Other brokers may charge a commission for these riskier funds. But these alternative ETFs can be very volatile as you can only trade them during the daily trading window.

Expert Pies

M1 doesn’t offer a fully-automated robo-advisor platform that handles every step of the investing process for you. Their next-best option can be what M1 calls “expert pies.”

There are many different pre-made pies you can choose.

Examples of general investing expert pies such as Ultra Conservative, Conservative, Moderately Conservative, Moderate, Moderately Aggresssive, Aggressive, and Ultra Aggressive.
Some of the pre-made “Expert Pies” you can invest in.

You can find expert pies in seven different portfolio strategies:

  • General investing: Stock and bond index funds with differing investment risk levels
  • Plan for retirement: Target-date retirement funds
  • Responsible investing: Invest in domestic or international socially responsible funds
  • Income earners: Focus on dividend and bond income
  • Hedge fund followers: Invest in assets that large hedge funds hold
  • Just stock and bonds: Stock and bond index funds (i.e., 60% stocks and 40% bonds)
  • Other strategies: Focused investment strategies (i.e. value or growth)

The general investing pies follow the Modern Portfolio Theory (MPT) guidelines. Most robo-advisors practice an investment philosophy similar to the general investing expert pies. M1 makes it possible to buy a robo-advisor portfolio and avoid the standard 0.25% annual management fee these platforms charge.

Each expert pie displays the risk level to help you choose which the best pie(s).

Research Tools

The M1 Invest research tools are not as robust as traditional online brokers like Fidelity or E*TRADE. The limited research capability is one reason why free investing apps are free.

You will need to use your full-service broker or a free investing tool like Yahoo Finance for more in-depth research if you want to invest in individual stocks.

What Research Tools M1 Finance Provides

You can track the price history of a stock or fund for the last five years. M1 Finance also links to the latest news articles for individual companies and the market. You also see a basic company profile, dividend yield, and P/E ratio.

But you won’t be able to analyze a company balance sheet or their Form 10-K reports on M1.

M1 has a basic screening tool to filter potential investments by these factors:

  • Market capitalization
  • P/E ratio
  • Dividend yield
  • Expense ratio
  • Assets under management
  • Asset class

You can add potential picks to your watchlist to quickly track future buys.

What Research Tools M1 Finance Lacks

You won’t be able to research these data on the M1 dashboard:

  • Company fundamentals
  • Technical charts
  • Annual reports (i.e., Form 10-K)
  • Insider buys and sells
  • Analyst reports

The lack of these tools isn’t a downside if you primarily invest in index funds.

M1 Plus

The premium M1 Plus membership program launched in 2019 and annual membership costs $125.

Upgrading to M1 Plus might be worth it if you can benefit from a second daily trading window and the M1 Spend checking account.

Afternoon Trading Window

M1 Plus lets you can place buy and sell orders twice daily. The afternoon trade window opens at 3 pm Eastern and is only for Plus members.

M1 Spend Online Checking Account

You also get access to the M1 Spend rewards checking account. You get a debit card for purchases and ATM withdrawals. There isn’t a minimum account balance or monthly service fee.

M1 Spend benefits include:

  • Checking account balance earns interest of 1% APY
  • 1% cash back on debit card purchases
  • 4 ATM fee reimbursement per month

M1 Borrow Line of Credit

The third benefit is a 1.5% interest rate discount on a M1 Borrow line of credit. However, you don’t need to be a M1 Plus member to tap a line of credit.

Having a $10,000 account balance lets you borrow against your portfolio balance. This may be a low-cost alternative to a 401k loan but you sacrifice potential investment gains.

M1 Finance Review: How Does M1 Finance Make Money?

Even though M1 Finance is free to use, there are several ways M1 Finance makes money.

Here’s how M1 Finance makes money:

  • M1 Plus membership dues
  • Lending non-invested cash to banks
  • Interest by lending securities for short selling
  • Interest payments from M1 Borrow line of credit draws
  • Order flow commissions for routing buy and sell orders to certain exchanges

Most free investing apps and traditional brokers make money in similar ways. The M1 Plus fees and the order flow commissions directly affect investors.

Regarding order flow routing, exchanges pay a small commission to M1 Finance to execute the buy or sell order. For example, the price spread can be a few cents higher than a traditional broker. You won’t know the spread difference until you view your trade confirmation.

Order flow routing is a hidden cost but you have the ability to buy fractional shares or invest small amounts of money.

Smarter Investing: M1Finance.com

Is M1 Finance Secure?

M1 Finance uses military-grade encryption for its data transfers and storage. You can enable two-factor authentication requiring a one-time verification code to log into your account.

Of course, no digital platform is foolproof. You should check all your online accounts regularly to verify the account hasn’t been compromised.

What happens if M1 Finance goes out of business?

M1 Finance is a Securities Investor Protection Corporation (SIPC) member. SIPC insurance covers up to $500,000 in your brokerage account assets including $250,000 in cash assets.

The assets you invest in using M1 Finance are subject to normal market risk. The SIPC insurance doesn’t protect against these losses. But this insurance can recoup your security and cash holdings to transfer to another brokerage.

Your M1 Spend checking account has FDIC insurance up to $250,000. This is the same insurance your local bank offers to protect your wealth if the unlikely event of a bank failure.

M1 Finance Review: Who Should Join?

M1 Finance can be a good option for these investors:

  • Index fund investors
  • Investors who want to hold stocks and ETFs
  • New investors with small amounts of money

Positives and Negatives

Pros

  • Can buy fractional shares of most stocks and ETFs
  • Dynamic rebalancing
  • No trade fees or advisory fees
  • Index funds and pre-made portfolios
  • Taxable and retirement accounts

Cons

  • One daily trading window
  • Few research tools for buying individual stocks
  • Add-on M1 Plus membership may not be worth the annual fee ($125 per year)
  • $500 account minimum to open an IRA
  • No fully-automated “robo” option

Final comments on this M1 Finance Review

M1 Finance is one of the best free investing apps as you can buy fractional shares for many stocks and ETFs. Long-term investors who want to own index funds and stocks should consider M1 Finance as a fee-free way to build passive income. Click here to sign up today!

M1 Finance Review + How to Start Investing for Free

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