M1 Finance Review: A Free Self-Directed Brokerage With Flexibility

As someone looking to invest for the long term, I’m doing my best to ensure that my investments grow as much as they possibly can over time.

How do I plan on doing that?

By keeping my investments diversified across the entire market, and by keeping my investment costs low.  I don’t want the fees, expense ratios, and account management costs to hold my investments back, and eat into my returns.

I have had accounts with a variety of robo advisors, and while I liked their websites and investment offerings, too many of them carry with them annual management fees in the range of  0.25%-0.35% of assets under management, or more. While the fees have come down for many of these investing services in the past year or so, I would prefer to pay less.

A while back I moved my Roth IRA account from one of the more popular automated investing services to a new service called Axos Invest. It advertised itself as the world’s first FREE financial advisor, and they allow you to invest in highly diversified ETF index funds, for no cost outside of the built-in ETF fund fees. 

I’ve been happy with the service, but the service offerings are still relatively spartan and I wanted to see what else was out there that could compare favorably – and possibly give a bit more flexibility in the investment options.

A few months ago I discovered a new self-directed automated investing service called M1 Finance that allows you to not only invest in diversified ETF index funds but also gives you the added flexibility of investing in an individual stock, much like you would with a traditional brokerage.  Today I’d like to take an in-depth look at this new brokerage in this M1 Finance review.

M1 Finance History

After a short beta period, in September of 2016 M1 Finance launched their service to become one of the absolute best hybrid automated investing and brokerage services available.  It was started by 25-year-old Stanford graduate, Brian Barnes. From Business Insider:

When Brian Barnes graduated from Stanford in 2012, he had a hard time finding a tool with which he could invest in the stock market on his own. This prompted him to start his own online brokerage site, M1 Finance, at 25 years old.

“What I was trying to do seemed relatively basic,” Barnes penned in a recent post on M1’s site. “I wanted to be able to pick my investments, and have recurring deposits automatically added to those allocations.”

And that’s exactly what M1, which has $60 million under management, allows users to do. M1 users can pick the stocks they want to invest in and then they can determine what percentage of their portfolio they want each position to make up. M1 automatically updates as you put in more money and as stock prices fluctuate to maintain your preferred portfolio allocation. So if you want Apple to make up 25% of your portfolio, M1 will balance your portfolio as such. That means you can’t buy one Apple share, or one Amazon share. It’s all about the portfolio.  

M1 Finance is an investing platform that combines the automation of an automated investing with the choice and control over your investments of a traditional online brokerage.

M1 Finance allows you to create a portfolio based on whatever investments you want, and add them to what they call a “pie”.  If you don’t want to choose your investments you can also choose pre-built pie templates which can carry any number of ETF funds, individual stocks, or whatever investments you want. You can set it up to auto-invest in your pies over time, automatically rebalancing your holdings on a regular basis.

They do all the aforementioned things, and they do it for an extremely reasonable cost. The basic service is FREE.  So let’s take a closer look at what they have to offer.

Opening An Account With M1 Finance

Opening an account with M1 Finance is a simple process. There are several types of accounts you can open:

• Taxable Investment Accounts
• Roth IRA
• SEP IRA
• Traditional IRA
• Trust Accounts
• Rollover IRA

To get started you’ll be walked through a 3 step process.  First, you’ll enter your login and password, and then you’ll do the following:

1. Build Your Portfolio Pie: During this part of the process, you’ll be introduced to M1 Finance’s Pie concept, and be allowed to create your portfolio.
2. Open Brokerage Account: You’ll choose and set up your account type including filling out your profile details.
3. Add Money To Your Account: You’ll link your bank account that will be funding your brokerage account.

You can open the account with no money at all at first if you want and then begin investing once your account reaches $100.  Or you can make an initial deposit right away. Open your free account through the link below.

Open Your FREE M1 Finance Account Now

How Does M1 Finance Work?

M1 Finance is a lot more flexible than a lot of other investing services out there. With most others, they give you the option of 1 or more pre-built investment portfolios, where the only thing you can really change is your stock to bond allocation to match your level of risk.

With M1 Finance you have much more control over the investment process, and over what gets added to your portfolio.

Pie Investing

I mentioned up above that M1 Finance allows you to invest in portfolios, which they call “pies”.

Pies are the most basic organizational structure for your investments. Each pie has as many as 100 slices, with the individual slices being your individual stocks, ETFs or even another pie.

Each slice is assigned a percentage of your total pie, and the system will do it’s best to keep it at that percentage when you receive dividends or add funds to your account.

M1 Finance has over 60 pre-built pies that you can choose from, and you can customize any of the pre-built pies if you want to add or subtract something from it.

Pie Categories

The pre-built investment pies at M1 have been broken down into 8 categories

1. General Investing:  Build a diversified portfolio based on your personal level of risk tolerance.
2. Plan for Retirement: Invest in a portfolio that is tailored for you and your target retirement date.
3. Responsible Investing:  Invest in socially and environmentally friendly investments.
4. Income Earners: Choose investments based on dividends and income returns.
5. Hedge Fund Followers: Aims to emulate the strategies of successful investors and hedge funds with good reputations.
6. Industries and Sectors:  Invest in specific sectors like aerospace, biotech, and more.
7. Just Stocks and Bonds: Gives you a highly diversified portfolio with a total world stock fund, and a bond fund.
8. Other Strategies: Other popular investment strategies that you can use to meet your goals.

Choose Your Pie And Save

So once you find a pre-built pie, or customize one of your own, you’ll now have the pies in your dashboard.  You can add as many pies as you like in your account, although M1 Finance states that a  “portfolio generally cannot hold over 500 individual positions“.

Now that your pies are built, there are a few things to keep in mind.

• M1 Finance makes all trades at 9AM central every day that the New York Stock Exchange is open.
• Once the account has $10 of cash available, it will automatically be invested.
• Every time money flows into your M1 Pie, either through new contributions or dividend deposits, M1 will direct those funds appropriately into underweighted slices. This brings those slices up to the allocation levels you chose when you created your Pie. As the size of your slices change over time due to normal market drift, you can keep your investments properly balanced through new contributions and automatic rebalancing.
• You can do a manual account rebalance as well through your dashboard, either on a specific pie, or on your whole portfolio.

M1 Finance Mobile App

M1 Finance has well-reviewed mobile apps available for both iOS and Android.

• Play Store
• App Store

Within the apps you can do any number of things from creating custom portfolios, setting up automatic investments, to re-balancing your portfolio. It’s a full-featured app that works well by all accounts.

M1 Borrow

M1 Finance released a feature that allows you to borrow money at one of the lowest rates available right now, 3.5%, or 2% if you have an M1 Plus account.

How does it work?  You can instantly borrow up to 35% of your account balance at a low rate of 2%-3.5%.   The only qualification is that you have a brokerage account with a $2,000 balance or greater.

How does the 2%-3.5% rate compare to other typical loan types?

There is no paperwork, credit checks, or application denials.  As long as you have an account, and meet the $2k criteria, you can borrow up to 35% of your account balance at a rate lower than most other types of loans!

Now I wouldn’t necessarily recommend taking out loans for any old purpose, but it’s nice to know it’s there in case you need the option.

M1 Finance Fees & Account Charges

Probably one of the biggest draws for M1 Finance at this point in time is the fact that they are essentially a fee-free service.

Until a couple of years ago they did carry an annual management fee for assets under management, but that’s no longer the case. Here’s how the founder explained the change:

As a business, we need revenue to serve our customers and grow. Fortunately, in our industry, there’s no shortage of ways to make money outside of charging for services. In fact, the largest public brokerages typically only make 10-30% of their revenue from the commissions they charge. The majority comes from other services the brokerage provides. Brokerages make money via lending securities they hold, interest on cash held in a brokerage account, extending credit through margin to customers, and getting paid for distributing certain funds or to transact on various exchanges. These revenue streams are more than enough to support a strong, vibrant company. This is also true at M1, and we will make more money from transactions and holding the assets than we would from our fee. The number one driver of M1’s success over time will be the number of users and assets managed. If going free puts M1 in more people’s hands and empowers them to manage more of their money on the platform, the move to free is a win-win.

Their fees are now:

• Management fee: FREE
• Trading fees: FREE
• Rebalancing fees: FREE
• Dividend reinvestment fee: FREE

M1 Finance does have fees related to transferring funds via wire transfer, or doing a full account transfer out, although regular electronic funds transfers (EFT) are free. To see a full listing of those administrative fees see their fees disclosure page.

There is a $100 minimum account size to invest with a taxable account and a $500 minimum account size to invest for retirement (IRA / Roth IRA) accounts. There is no minimum to open an account.

M1 Finance – Low Cost And Flexible

M1 Finance is one of the more intriguing automated investment platforms that I’ve heard about in the past couple of years.

While they are similar to some of the existing investing services in that you can choose a pre-built investment portfolio, set it to auto-invest, rebalance and just let things ride, they also offer a whole lot more flexibility.

In addition to their pre-built portfolios, you can customize any portfolio to your heart’s content, or create your own custom one.  Buy individual stocks, ETFs, or whatever you want.  You aren’t contained to a set list of ETF funds. If you want to hold some individual bio-tech stocks in your portfolio or buy some Apple stock just for fun, feel free! It’s free to trade!

I’d definitely recommend checking out M1 Finance as they’re one of the more innovative, low-cost brokerages out there today.  You can use it as a traditional self-directed automated investing service, or use it as a traditional brokerage account to buy individual stocks. It’s a hybrid that gives you the best of both worlds!

Open your free account through the link below.

Get Your M1 Finance Account Now!

M1 Finance

$0

9.9

Ease of use

10.0/10

Design

10.0/10

Cost Efficiency

10.0/10

Investment Strategy

9.5/10

Pros

• Free to use
• Select your own investments
• Buy fractional shares
• No minimum initial deposit
• Many account types

Cons

• No tax loss harvesting
• No 529 or Solo 401k accounts
• No mutual funds, only ETFs or stocks

Invest With M1 Finance