M1 Invest Review: The Customizable and Free Robo Financial Advisor
M1 Finance Pros and Cons
- M1 is free to use
- User-friendly mobile app
- Customizable portfolio
- Limited customer service
- No tax-loss harvesting
What is a Robo-Advisor?
A robo-advisor is a type of investment platform that uses technology designed to grow investments. Usually, when investors sign up with a robo-advisor, they fill out a survey with their investment goals and risk tolerances, and then they’re given a recommended investment plan.
Robo-advisors use algorithms to select stocks, bonds and ETFs; determine how much to purchase of each; and recommend options that are most likely to meet the investor’s needs.
Of course, like any investment, there is risk. The algorithms that robo-advisors use aren’t perfect. The technology can make educated guesses but can’t see the future. Most algorithms are based on the same rules financial advisors use, which are based on how stocks have worked historically.
The biggest downside of a robo-advisor is the lack of personalization. Based on how you answered the survey questions, you’ll be placed into a group and your money is invested into the same stocks and bonds as everyone else in that group. Some investors might feel like they’re stuck in a box that doesn’t meet all of their specific needs. However, a small number of robo-advisors, like M1 Invest, do add the flexibility to choose specific stocks and ETFs to keep in your portfolio.
Robo-advisors offer people an easy way to invest their money, and it’s mostly hands-off. That allows you to invest your money without keeping a constant eye on the stock market. Most robos will buy and sell stocks to keep your portfolio balanced and can do things like tax-loss harvesting and tax-advantaged withdrawals. Robo-advisors also cost significantly less than a human investment advisor or portfolio manager; some are entirely free to use.
In this review, we’re taking a look at M1 Finance and its investment platform, M1 Invest. M1 has combined the technology of a robo-advisor with the ability for users to invest in specific stocks and ETFs for free.
Intro to M1 Finance
In 2015, Brian Barnes launched M1 Finance and has seen significant success in the past five years. Brian saw a need when he was looking for a financial management tool that used up-to-date tech and couldn’t find one that performed in the way he wanted.
The goal of M1 Finance is to empower people to manage and grow their money in their own way.
Since their beginning, M1 has helped over half a million investors manage their money. As of September 2020, M1 has reached $2 billion in assets under management and is on track to keep growing.
M1 has continued to make improvements and add financial management tools. Currently, M1 offers a robo-advisor investment platform, margin accounts (loans against your stocks), and a spending account with a debit card. The basics are free, and a premium subscription provides some added benefits to help you manage your money.
What does M1 Finance provide?
If you don’t want to deal with the pressure of choosing the right stocks, M1 offers investors more than 80 expert-built portfolios to select from. You can choose to invest in one of the expert pies that aligns with your goals. These are made up of two to 10 stocks, bonds and funds; past returns, dividends and risk level are available for review.
M1 Invest also gives you the freedom to build your own custom portfolio. You can choose from 6,000+ stocks and funds to make a custom pie and invest as aggressively or conservatively as you want. Most robo-advisors don’t give investors this type of freedom and only allow you to invest in a handful of different portfolios.
When you sign up for a robo-advisor like Wealthfront or Betterment, your portfolio is built for you. During the signup process, you answer a few questions about your net worth, income and investment goals. Then, an algorithm will suggest a portfolio designed to meet your general needs. This process makes it easy to get started but lacks the freedom to invest in individual stocks and bonds. M1 Invest, with its many portfolio options, allows for a lot more customization but could be intimidating for someone just starting out.
Account Types Offered
M1 provides a few different account types designed to fit your needs. These include individual investment accounts, joint accounts, Roth IRAs, IRAs, SEP IRAs and trusts.
An individual or joint investment account has no limits on the money you deposit or withdraw, and you’re responsible for paying taxes on your investment gains. IRAs are retirement accounts designed to save money for retirement and offer tax breaks when you deposit or withdraw your money, but with a lot of rules and regulations. Check out this article to learn more about different retirement accounts that can help you build wealth.
One of the best features of robo-advisors is the auto-rebalancing. This is a feature that’s not available on stock trading platforms like Robinhood. Rebalancing keeps your investments on track to meet your goals without requiring any action on your part.
Because the market is always moving up and down, your investments can drift from your original goals over time. As you deposit more money into your M1 Invest account, M1 rebalances your investments.
Let’s say you set up a recurring investment into a moderate pie with 50% low-risk bonds and 50% higher-risk stock ETFs. As you deposit money into your investment account, the rebalancing will keep you as close to those goals as possible. Without rebalancing, your bonds can end up growing faster than expected, and your portfolio can slowly become more conservative. If you set up a weekly $100 deposit, M1 Invest will invest the $100 into the right stocks and bonds to keep your portfolio in line with your 50% low-risk bonds and 50% higher-risk stocks goals.
Other M1 Services
M1 Spend makes managing your money in one place simple and is similar to a free checking account. The account comes with a debit card and allows you to quickly transfer money between your Invest and Spend accounts.
There are no minimum balance requirements or fees and ATM fees are covered once per month.
M1 Borrow is a portfolio line of credit that can be used when you have $10,000+ in your investment account. It acts similar to a margin account at a traditional brokerage. A portfolio line of credit uses your investment portfolio as collateral for a cash loan. M1 allows investors to borrow up to 35% of their investment portfolio balance.
If you have $10,000, you’ll have access to $3,500 of credit. Because your line of credit is limited to 35% of your investment account, there’s no risk of you not paying back the loan. This allows you to get a low 3.5% APY on your loan, and there’s no need for a credit check. M1 Borrow can help you pay off higher interest loans, and there is no required payment schedule, so you can borrow cash for as long as you need it.
M1 Plus is a premium subscription that costs $125 per year. There are a few benefits that can make the subscription well worth the cost.
- You will have access to a second trading window, which allows for more active trading.
- You will earn 1% interest on cash in your Spend account.
- You will earn 1% cash-back on purchases made with your M1 Spend debit card.
- You can borrow at an even lower 2% APY.
If you plan to use the M1 Spend or Borrow features, a Plus subscription can easily pay for itself with the interest, cash-back and lower loan interest rates if you have high-enough balances. If you don’t plan on using those features, the second trading window isn’t enough to upgrade.
Is M1 Invest right for you?
We understand that everyone’s investment goals are different. You should choose the tools that work best for you.
Simplicity + Freedom: We find that M1 is an excellent balance between simplicity and freedom. You have the freedom to invest in individual companies, but you also don’t need to in order to grow wealth. This is great for investors with some knowledge of the stock market but maybe aren’t comfortable with the pressure of buying and selling at the right time.
User-friendly Mobile App: Keeping track of your investments on the go is very convenient. M1 Finance’s mobile app has thousands of five-star reviews and allows you to manage all of your investments from anywhere. You can check on your performance, create new investment pies, and transfer money to and from your account.
Two downsides we found are the limited customer service and no tax-loss harvesting plan. These will affect investors with bigger portfolios or beginning investors who are interested in hands-on financial advice.
No Tax-loss Harvesting: Tax-loss harvesting is an automated plan that takes advantage of your realized losses and aims to lower the taxes you pay on your investment gains. In most cases, this benefits investors with larger ($100,000+) portfolios.
Fidelity explains how tax-loss harvesting works like this: Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset realized investment gains with those losses. The end result is that less of your money goes to taxes and more may stay invested and working for you.
Lacks Customer Service: M1 does have a lack of great customer service. M1 relies a lot on technology, and you shouldn’t expect a person to be available to help answer your questions. M1 doesn’t have any financial advisors on their team, so it’s up to you to make educated investing decisions.
This might be a problem if you’re brand new to investing and not familiar with online banking. M1 has plenty of articles that help answer common questions, and the setup process is easy, but you’re going to need to be somewhat tech-savvy and willing to look around for answers.
How does M1 work?
You can get started with M1 in under 15 minutes. Most robo-advisors have a simple and easy-to-follow signup process, which is a lot simpler than going to a bank or setting up an in-person meeting with an advisor.
M1 will ask for some basic personal information and then give you three steps to get started with your investment portfolio.
The first step is to create an investment pie. You can choose from popular stocks and ETFs, an expert pie, or search for a company you want to invest in.
Next, you’ll enter your name, address, estimated income and net worth. Last, you will need to fund your account. You can connect your checking account by logging in to your bank account online or by providing your account number and routing number.
You’ll need to fund your account with at least $100 before your money is invested, but there’s no time limit on that. Once your first $100 is in your M1 account, it’s invested into the pie you’ve chosen or built. From here, you can set up a recurring deposit and grow your portfolio on autopilot.
When choosing how to build your investment portfolio, it’s important to look at historical performance. Since we can’t tell the future, your best option is to look at how portfolios have performed in the past. Are they stable or volatile? How have they performed in the past six months?
You can look at past returns and estimated risk levels of the expert built pies and see the history of individual stocks and funds. Again, it’s essential you do your research in order to make educated investment decisions.
M1 isn’t the only robo-advisor or investment platform available. There are plenty of great tools that use technology to make investing easy. What makes M1 Invest unique is the lack of management fees and the ability to purchase individual shares of stock.
WeBull and Robinhood are two investment platforms that allow investors to purchase stocks without any fees, but it’s your responsibility to make the right decisions. On the other side, Betterment and Vanguard offer a more hands-on approach and provide more guidance.
We found M1 Invest to be a great combination of these financial management tools. Here’s our side-by-side comparison:
Why we give M1 Finance an A+
We believe M1 Invest provides an excellent platform to help you get started investing and building wealth. The website and app are easy to use and give you a great overview of your investment portfolio.
When you’re just getting started, investment management fees can easily take away from your gains. The fact that M1 is completely free and offers everything you need to invest successfully earns it an A+ in our book.
If you’re ready to get started with M1, make sure to use our link to get a $10 bonus when you fund your investment account.
Q: Is my money safe?
A: There’s always a level of concern when dealing with online banking. When you open an M1 account, you’ll need to enter your personal information, including your social security number, name and address. M1 protects investors by utilizing 4096-encryption (online bank-level security) and two-factor authentication. It’s your responsibility to create a unique password for your account and keep your login info safe. In addition, if M1 unexpectedly went out of business, your money won’t be lost. M1 is a registered broker with FINRA and a member of SIPC, so your money is insured up to $500,000.
Q: Are there hidden fees?
A: M1 doesn’t charge any fees. There are SEC and TAF (Trading Activity Fee) fees that are charged when you sell any security. These fees are usually only a few pennies and deducted automatically when a share is sold.
Q: How do I withdraw money?
A: You can submit a withdrawal request at any time. If your money is in a Spend account, it’s transferred to your bank in 2-3 business days. If it’s invested, M1 will sell the shares and then transfer the money to your bank, which takes 4-5 business days.
Q: Will M1 affect my credit score?
A: No. Even if you use M1 Borrow for a loan, it doesn’t show up on your credit report, and M1 doesn’t run any credit checks. This is because the cash in your portfolio will be used to pay off the loan, leaving no risk of nonpayment.