M1 Finance Review: Best Automated Investing App for Beginners?

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Upfront Bottom Line

M1 Finance’s hybrid model offers you a compelling blend of automated investing and portfolio customization, potentially revolutionizing how you approach personal finance. The platform’s innovative “Pie” system allows you to fine-tune your investments with unprecedented precision, while its zero-fee structure could significantly boost your long-term returns.

For tech-savvy investors seeking a balance between control and automation, M1 Finance is a game-changer. You’ll appreciate the ability to create highly personalized portfolios that align with your specific financial goals, all while benefiting from automated features like dynamic rebalancing and dividend reinvestment.

However, the platform’s flexibility is a double-edged sword. While it empowers you with greater control, it also demands a higher level of financial literacy. If you’re new to investing, the freedom to construct complex portfolios could lead to poorly diversified strategies or inadvertent risk exposure.

The zero-fee structure is undoubtedly attractive, potentially saving you thousands in fees over time. But it’s essential to consider the sustainability of this model and be aware of potential hidden costs or compromises in other areas of service.

Ultimately, M1 Finance’s worth depends on your investment knowledge and goals. If you’re an experienced investor or willing to educate yourself, the platform’s unique features can provide unparalleled flexibility and potential for optimized returns. However, if you’re just starting out, the lack of guardrails could potentially lead to suboptimal outcomes.

In essence, M1 Finance represents a significant evolution in personal investing platforms. Its innovative approach challenges traditional models and could accelerate your wealth accumulation. But to truly benefit, you’ll need to invest not just your money, but also time in understanding the platform’s features and general investment principles.

M1 Finance Review

M1 Finance is reshaping the landscape of personal investing with its innovative ‘Pie’ system, zero-fee structure, and powerful automation features. This unique combination offers you unprecedented control and efficiency in managing your investments.

The ‘Pie’ system is more than just a visually appealing interface - it’s a game-changer in how you approach portfolio construction. With this tool, you can fine-tune your asset allocation with precision, creating a portfolio that perfectly aligns with your investment goals and risk tolerance. Whether you’re aiming for aggressive growth or steady income, the ‘Pie’ system allows you to easily visualize and adjust your strategy.

One of the most revolutionary aspects of M1 Finance is its zero-fee structure. By eliminating trading commissions and management fees, M1 allows you to keep more of your returns. This fee-free approach can significantly boost your long-term wealth accumulation, especially when combined with the power of compound interest. It’s like having a tailwind that accelerates your journey towards financial freedom.

Automation is at the heart of M1 Finance’s appeal. The platform’s dynamic rebalancing feature acts like a tireless investment assistant, continuously working to maintain your desired asset allocation. This hands-off approach not only saves you time but also removes the emotional aspect of investing, helping you stick to your strategy even during market turbulence.

M1 Finance is also at the forefront of democratizing investing through fractional shares. This feature allows you to invest in high-priced stocks with minimal capital, opening doors to diversification that were previously closed to many investors. Whether you have $10 or $10,000 to invest, you can build a portfolio that includes top-performing companies across various sectors.

The platform’s all-in-one approach, integrating investing, borrowing, and spending, offers you a comprehensive financial ecosystem. This integration simplifies your financial life, allowing you to seamlessly move money between investments and everyday spending. The ability to borrow against your portfolio provides financial flexibility, though it’s crucial to use this feature judiciously.

While M1 Finance’s innovative features offer exciting possibilities, they also come with responsibilities. The platform’s flexibility and power require a solid understanding of investment principles. As you navigate this powerful tool, it’s essential to educate yourself about diversification, risk management, and long-term investing strategies.

In conclusion, M1 Finance is not just another investment platform - it’s a paradigm shift in personal finance. By combining customization, cost-efficiency, and automation, it empowers you to take control of your financial future in ways that were previously unimaginable. Whether you’re just starting your investment journey or looking to optimize your existing strategy, M1 Finance offers tools that can potentially accelerate your path to financial success.

The Good

Customizable ‘Pie’ System: M1 Finance’s innovative ‘Pie’ system puts you in the driver’s seat of your investment strategy. With this intuitive tool, you can craft a portfolio that perfectly aligns with your financial goals and risk tolerance. Want 40% in tech stocks, 30% in dividend payers, and 30% in bonds? You can set that up with just a few clicks. This level of customization empowers you to express your unique investment thesis and adapt your strategy as market conditions change.

Zero-Fee Trading: Say goodbye to commission fees eating into your returns. M1 Finance’s zero-fee structure means every dollar you invest goes directly into building your wealth. This is particularly powerful for smaller, frequent investments - you no longer have to wait to accumulate a large sum to make investing worthwhile. Whether you’re investing $10 or $10,000, you keep more of your money working for you.

Dynamic Rebalancing: M1 Finance takes the hassle out of maintaining your desired asset allocation. As you add funds or as market movements shift your portfolio balance, the platform automatically rebalances your holdings to match your target ‘Pie’ allocations. This hands-off approach ensures your investment strategy stays on track without requiring constant monitoring and manual adjustments on your part.

Fractional Share Investing: Gone are the days when you needed hundreds or thousands of dollars to invest in high-priced stocks. M1 Finance’s fractional share feature allows you to own a slice of any stock or ETF, regardless of its share price. This means you can build a diversified portfolio with minimal cash drag, even with small investment amounts. Want exposure to Amazon or Google but can’t afford a full share? No problem - you can invest with as little as $1.

These features combine to create a powerful, flexible investing platform that caters to your unique needs:

1. The ‘Pie’ system and fractional shares allow you to create a precisely tailored, diversified portfolio regardless of your account size.

2. Zero-fee trading and fractional shares eliminate barriers to entry, making it possible for you to start investing with any amount and add to your investments frequently without worrying about fees.

3. Dynamic rebalancing keeps your carefully crafted strategy on track without requiring constant attention from you.

4. The combination of customization and automation strikes a balance between control and convenience, allowing you to set your strategy and let M1 Finance handle the day-to-day management.

By leveraging these features, you can create a sophisticated investment strategy that previously might have been accessible only to professional money managers or high-net-worth individuals. Whether you’re just starting out or you’re a seasoned investor, M1 Finance provides the tools to build and maintain a portfolio that’s uniquely yours, all while minimizing costs and maximizing efficiency.

The Hype

While M1 Finance offers an innovative and powerful platform, it’s important to look beyond the marketing hype and consider potential drawbacks:

“Ultimate flexibility” might be overwhelming: M1 Finance touts its customizable “Pie” system as offering ultimate flexibility, but this could be a double-edged sword. You might find yourself paralyzed by choice or creating poorly diversified portfolios without realizing it. The platform’s flexibility, while impressive, doesn’t guarantee optimal investment decisions.

Zero-fee model sustainability questions: The zero-fee structure is undoubtedly attractive, but it’s worth considering its long-term viability. You should be aware that M1 Finance may need to find alternative revenue streams, which could potentially impact service quality or lead to the introduction of new fees in the future.

Automation isn’t foolproof: While M1’s automated rebalancing and dividend reinvestment features are convenient, they don’t guarantee optimal tax efficiency. You might face unexpected taxable events, especially in taxable accounts, if you’re not careful with your settings.

Limited trading windows: The once-daily trading window, marketed as promoting long-term investing, can be frustrating if you want to react quickly to market news. This limitation might not align with your investment style if you prefer more active management.

All-in-one platform risks: The integration of investing, borrowing, and spending sounds convenient, but it could tempt you to use portfolio leverage unwisely. Easy access to margin can be risky if you’re not experienced with this type of borrowing.

Oversimplification of complex concepts: While the visual pie chart representation of your portfolio is intuitive, it might oversimplify complex investment concepts. You could be lulled into a false sense of understanding without grasping the full implications of your investment decisions.

M1 Plus subscription value: The M1 Plus subscription offers perks, but you should carefully evaluate whether the benefits justify the cost for your specific situation. Some features that could be standard might feel unnecessarily locked behind this paywall.

Education resources may fall short: Despite M1’s user-friendly interface, you might find yourself craving more in-depth educational resources, especially if you’re making complex investment decisions. The platform’s design might not fully bridge the knowledge gap for less experienced investors.

While M1 Finance offers many innovative features, it’s crucial to approach the platform with a realistic understanding of its capabilities and limitations. The flexibility and power it provides require a level of financial literacy that you should honestly assess before fully embracing the platform.

What Can Be Improved?

While M1 Finance offers a robust platform, there’s always room for growth. Here are some areas where you might find the service could use a bit of polishing:

Educational resources could use a boost: While the platform’s design subtly educates you through its interface, you might find yourself craving more in-depth learning materials. As you dive deeper into complex investment strategies, you could benefit from more comprehensive guides and tutorials to help you make informed decisions.

Limited active trading options: If you’re the type who likes to react quickly to market news, you might feel constrained by the once-daily trading window. This setup encourages long-term thinking, which is great, but it could leave you wanting more flexibility for those moments when you need to make swift moves.

Balancing act between automation and control: The hybrid model of robo-advisory and self-direction is unique, but you might sometimes feel caught between two worlds. There could be moments when you want more guidance, and others when you crave more control. Finding that perfect balance can be tricky.

M1 Plus subscription value proposition: While M1 Plus offers some attractive perks, you might question whether the benefits justify the cost. Some features that could potentially be standard seem to be locked behind this paywall. It’s worth carefully considering whether the additional features align with your specific needs and investment style.

Tax implications of dynamic rebalancing: The automated rebalancing feature is fantastic for keeping your portfolio on track, but it might trigger more taxable events than you’d like in taxable accounts. A bit more control over when and how rebalancing occurs could help you manage your tax liability more effectively.

Potential for over-customization: The ‘Pie’ system’s extensive customization options are powerful, but they could lead you to create overly complex or poorly diversified portfolios if you’re not careful. Some guardrails or guidance to prevent excessive tinkering might be beneficial.

Limited options for more experienced traders: If you’re an advanced investor, you might find the platform lacking in some sophisticated tools and order types that you’re used to. Adding more advanced features without compromising the platform’s simplicity could enhance its appeal to a broader range of investors.

By addressing these areas, M1 Finance could further solidify its position as a top-tier investment platform, catering to an even wider range of your financial needs and preferences. Remember, what needs improvement for one investor might be perfect for another – it’s all about finding the right fit for your unique investment journey. M1 Finance stands out as a groundbreaking platform in the personal investing landscape, offering a unique blend of automation and customization that could revolutionize how you approach wealth building. Its innovative ‘Pie’ system and zero-fee structure have the potential to significantly accelerate your wealth accumulation, especially if you’re an informed investor who can leverage these tools effectively.

As you consider M1 Finance, reflect on how its features align with your investment goals. The platform’s flexibility allows you to be as hands-on or hands-off as you desire, making it suitable whether you’re a seasoned investor or just starting your financial journey. However, it’s crucial to honestly assess your financial literacy level. While M1’s intuitive interface makes complex investing concepts more accessible, the platform’s power and flexibility require a solid understanding of investment principles to fully capitalize on its benefits.

Remember, M1 Finance isn’t just another investing app - it’s a comprehensive financial tool that could reshape your approach to money management. From its dynamic rebalancing to fractional shares, each feature is designed to optimize your investing experience. But with great power comes great responsibility. The platform’s customization options, while empowering, also require careful consideration to ensure you’re creating a well-diversified portfolio that aligns with your risk tolerance and financial goals.

Ultimately, M1 Finance represents a significant evolution in personal investing platforms, challenging the traditional dichotomy between robo-advisors and self-directed investing. If you’re ready to take a more active role in your financial future while still benefiting from automation, M1 Finance could be the game-changer you’ve been looking for. Just remember, the key to success lies not just in the platform itself, but in how well you understand and utilize its features to serve your unique financial journey.

FAQ: M1 Finance

• What fees does M1 Finance charge? M1 Finance offers commission-free trading for standard accounts. You won’t pay any fees for buying or selling investments, nor for maintaining your account. However, there’s an annual fee of $125 for M1 Plus, which offers additional features like a second daily trading window and lower borrowing rates.

• What types of accounts can I open with M1 Finance? You can open various account types with M1 Finance, including individual and joint taxable accounts, Traditional IRAs, Roth IRAs, SEP IRAs, and trust accounts. This flexibility allows you to tailor your investment strategy to your specific financial goals and tax situation.

• How does the ‘Pie’ system work? The ‘Pie’ system is M1’s unique approach to portfolio management. You create a pie chart representing your ideal asset allocation, with each slice representing a specific stock, ETF, or even another pie. When you invest, your money is automatically distributed according to your pie’s percentages. This visual approach helps you maintain your desired asset allocation easily.

• Are there tax implications from M1’s frequent rebalancing? Yes, there can be. M1’s dynamic rebalancing can trigger more frequent buying and selling in taxable accounts, potentially leading to taxable events. However, M1 uses tax-efficient lot selling to minimize tax impact. To further manage tax implications, consider using M1 for your tax-advantaged accounts like IRAs.

• How can I effectively use M1 Finance for long-term investing? To maximize M1 for long-term investing, start by creating a well-diversified pie aligned with your risk tolerance and investment goals. Enable auto-invest to consistently add to your investments over time. Take advantage of the automated rebalancing to maintain your target allocation. Regularly review and adjust your pie as needed, but avoid frequent changes to benefit from long-term market growth.

• Can I transfer existing investments to M1 Finance? Yes, you can transfer existing investments to M1 Finance through an ACATS (Automated Customer Account Transfer Service) transfer. This allows you to move your securities from another brokerage to M1 without selling them, potentially avoiding tax consequences.

• How does fractional share investing work on M1 Finance? M1 allows you to buy fractional shares, meaning you can invest in high-priced stocks with small amounts of money. When you invest, M1 will purchase as much of each security in your pie as possible, even if it’s just a fraction of a share. This helps you maintain your desired asset allocation and fully invest your available funds.

• What happens if a stock in my pie pays dividends? By default, M1 Finance automatically reinvests dividends back into your pie according to your target allocations. This helps compound your returns over time. However, you can also choose to have dividends paid out to your cash balance if you prefer.

• How often can I trade on M1 Finance? M1 offers one daily trading window for standard accounts, typically in the morning. If you have an M1 Plus subscription, you get access to a second afternoon trading window. This structure encourages a long-term investing approach rather than frequent trading.

• Is my money safe with M1 Finance? Your investments with M1 Finance are protected by SIPC insurance, which covers up to $500,000 in securities and $250,000 in cash per account. Additionally, M1 uses bank-level encryption and security measures to protect your personal and financial information.

Best Alternatives to M1 Finance

Betterment vs. M1 Finance

Betterment stands out as a top alternative to M1 Finance if you’re seeking a more guided approach to investing. While M1 Finance offers high customization through its ‘Pie’ system, Betterment (see our review) provides a more traditional robo-advisory experience with professionally managed portfolios. This makes Betterment an excellent choice if you want automation and expert management without the potential pitfalls of over-customization.

Betterment’s strength lies in its comprehensive financial planning tools and tax-optimization strategies, which may appeal to you if you found M1’s tax implications challenging. Additionally, Betterment offers more robust goal-based investing features, making it easier for you to align your investments with specific financial objectives.

However, if you value M1’s high degree of portfolio customization, you might find Betterment’s approach too restrictive. Betterment also charges a management fee, unlike M1’s fee-free structure, which could be a consideration if you’re cost-conscious.

Wealthfront vs. M1 Finance

Wealthfront offers a middle ground between M1 Finance’s customization and Betterment’s guided approach. It provides automated investing with a degree of customization, making it a solid alternative if you appreciate M1’s flexibility but desire more professional oversight.

Wealthfront (read our review)’s strengths include advanced tax-loss harvesting and risk parity strategies, which may appeal to you if you’re a more sophisticated investor who found M1’s tax handling challenging. Additionally, Wealthfront offers a suite of financial planning tools and cash management features that rival M1’s integrated platform.

However, like Betterment, Wealthfront charges a management fee and doesn’t offer the same level of portfolio customization as M1 Finance. If you value M1’s ‘Pie’ system and zero-fee structure, you might find Wealthfront’s offering less appealing in these aspects.

Fidelity Go vs. M1 Finance

Fidelity Go presents an interesting alternative if you appreciate M1 Finance’s simplicity but desire the backing of a well-established financial institution. As Fidelity’s robo-advisor offering, it provides a straightforward, low-cost automated investing solution.

Fidelity Go’s main advantage is its simplicity and transparency. Unlike M1’s potentially complex ‘Pie’ system, Fidelity Go offers a more straightforward approach to portfolio allocation. This could be beneficial if you’re less experienced and might struggle with M1’s level of customization.

Moreover, Fidelity Go provides access to Fidelity’s extensive educational resources, addressing one of the concerns raised about M1 Finance. This makes it an excellent choice if you want to learn more about investing while your portfolio is being managed.

However, if you value M1’s high degree of customization and its unique features like fractional shares, you might find Fidelity Go too restrictive. Additionally, while Fidelity Go’s fees are low, they’re not zero like M1’s standard offering.

For a more in-depth look at other investment services that might suit your needs, check out our comprehensive review of Morningstar Investor. This service offers robust research tools and analysis that could complement your investment strategy.