M1 Finance – The First Sexy Robo-Advisor?

  • M1 Finance Logo

When I was a broke college student, I had fantasies of being a sexy investment guru.  Mind you, this was way back when Justin Timberlake’s “Sexy Back” was blasting through the radio.  (See how I weaved “Sexy Back” into a review about M1 Finance being sexy?)

In my fantasies, I was geared up in my power suit driving down some metro area in my luxury sedan yelling through the phone at my staff like Ari Gold, “Lloyd!”  “You buy $10,000 shares of Microsoft right now or I’m having Tonya Harding find you in the parking lot tonight!”

As I aged, I realized the Ari gold vision probably should go, and I also ditched the vision of the power suit and luxury sedan.  (I’m cool with a Hyundai and a suit from Zara these days).  But, the vision of becoming a great investor has not dwindled one bit.

Back when I was in college a decade ago, there may have been a handful of unsophisticated rob-advisors, but nothing like what we have today.  The idea of a robo-advisor like M1 Finance was pretty far off, and the art of stock picking was, somewhat, still en vogue.

I personally believe in the ownership of companies through their stock; I believe in taking part in the profits of a company that has great management, great economics, and great future potential.

Yet, unlike my college self, I also now believe in the novice investor using a passive index fund strategy as well.  I think many investors have this same mentality – passive is good, and stock picking is cool. 

This is why M1 Finance may be a nice fit if this sounds like you.

M1 Finance – A balance of both passive and active management

This is my second review of a robo-advisor.  I usually do reviews of companies or services I feel have a place for certain readers.

I’m not going to delve into grave details about comparative research between robo-advisor platforms.  The way I see it, it is simple – most robo-advisors use ETFs to create portfolios for their investors.

Some of the robo-advisors give you a risk tolerance questionnaire and put you into a blend of certain ETFs that fit your risk tolerance.  Other robo-advisors (like M1 Finance) allow you to pick your portfolio and don’t leverage a risk tolerance questionnaire.

In my opinion, this is the first fork in the road that distinguishes which path you want to take.  If you want a completely passive robo-advisor that will tell you your risk tolerance and invest your money accordingly, M1 Finance may not be for you.  If you are confident knowing your risk tolerance and want something in-between “somewhat passive” and “active”, M1 Finance is going to be a potential fit.

This is because M1 Finance allows you to “build” and “customize” what they call “pies”, and allows you to automate your investing.

Pies and Portfolio Rebalancing

M1 Finance Review pies

M1 Finance is based on creating pies (we’re not talking Pillsbury Doughboy pie, but pie as in a pie chart).  A percentage of your money will be allocated into a particular pie or pies that you either create or that are premade.

There are many different options when it comes to the creation of your pie.  You have the option of investing in vanilla ETFs, like Vangard’s VOO and target date funds, or you have the option of investing in more exotic ETF’s.  The best part about M1 Finance is the option to invest  your pie in individual stocks, but we will get to that later.

Like many robo-advisors, M1 allows you to re-balance your holdings.  You can simply click a button and all of your allocations will revert back to their original proportions.  You can do this by individual pie, or for your entire portfolio

For example, say you invested 60% of your money in Vanguard’s VOO and 40% in a Barclays bond ETF.  If the portion of the Vanguard pie increased to 65%, and the proportion of the bond ETF decreased to 35%, you can click a button and rebalance those proportions.  This will bring your proportions back to their original 60% and 40%.

Portfolio rebalancing is a tool that is available at most robo-advisors.  It is an important tool for a robo-advisor to have, but it is not what makes M1 Finance sexy.

 

 

 

Individual Stock Selection and Fractional Shares

M1 Finance Review setup screen

When I started looking into M1 Finance, what excited me was the opportunity for the world to finally move away from the “boring” robo-advisor platform.  M1 Finance isn’t boring – it’s sexy.

M1 Finance is sexy because it allows you to finally purchase individual stocks, and even fractional shares of companies.  Most robo-advisors are offering vanilla ETF portfolios which you can go out and buy on your own if you really want.

Now, sexy can be both bad and good – just like a beautiful woman, you don’t want to marry her just for her looks.  The sexy features of M1 Finance can get you in trouble if you aren’t careful – but, net net, I think what they have is great.

As you can see in the picture, a few of the many stock investment options include Snapchat, Starbucks and Sprint.  You can purchase individual stocks as easy as ETFs.

By the way, you may want to read my article about the Snapchat IPO:  Are you an IPO Gremlin? The Snapchat IPO

 

 

Expert Pies

M1 Finance hedge fund pie

Talking about sexy, M1 Finance offers what they refer to as “Expert Pies”.  This is very unique and I love the idea of the Hedge Fund Followers.  They also have the ability to go with socially responsible investing, which is really huge for many people.

As for the Hedge Fund Followers expert pie, you should understand what you are doing when you invest in this type of pie.

For example, if you want to invest in the companies Warren Buffett invests in through Berkshire Hathaway, there is a portfolio that tracks Berkshire’s holdings.  Just be mindful it uses what is called a 13-F to track the investments.

13-Fs are filed with the SEC quarterly.  They show what institutional investment managers are buying and selling.  For this reason, companies like Berkshire Hathaway file a 13-F each quarter.  The data released in a 13-F is public data, but it can also be a few months old.  If Buffett purchased a company at a certain price two months ago, the price after the 13-F is public may not be in the range that Buffett would buy the company.

Also, there are two other managers at Berkshire, Todd and Ted, who invest smaller amounts of money.  So you are not getting pure Warren Buffett picks, but you are still getting Berkshire Hathaway securities.

As long as you are mindful of facts like these, you may still wish to use the expert portfolios.

M1 Finance has Hedge Fund Follower pies of some titans of investing, such as: Bill Ackman, Carl Icahn, and, of course, Warren Buffett (just to name a few).

 

Fractional Shares

Another unique feature offered by M1 Finance is the ability to purchase fractional shares.  If you wish to purchase stock in Amazon and add it to your pie, you may not have enough to purchase a share (considering it is selling for over $950).  M1 Finance allows you to purchase a fraction of a share of a company.  If you only want to purchase 1/10th of a share of Amazon for around $95, you have the opportunity to do so.

This brings us to our next part – how much money do you need to fund an account?

Account Minimum

Yet another interesting feature of M1 Finance compared to other robo-advisors is the low account minimum.  You can open an account with as little as $100. 

There are not many robo-avisors out there allowing such a low account balance.  I would imagine the company feels confident you will stick with them after trying them out, and hopefully continue to build your account balance with them over time.

Mix this account minimum with the ability to invest in fractional shares and ETF’s, and you can try them out by creating a nice portfolio with a small amount of money.

Fees

Here is a breakdown of the fees:

  • NO FEES ON YOUR FIRST $1,000!! (Yes, you read that right…you can manage your first $1,000 for a fee of $0.)
  • The next $1,000 – $100,000 will come with a .25% fee.
  • $100,000 and up will come with a .15% fee.

Keep in mind when you calculate your fee, it is less than .25% or .15%.  This is because your first $1,000 comes with no fee.

Here is how the math works for the annual .25% usage fee if you have a $5,000 portfolio:

  • Portfolio balance = $5,000
  • Fee on $1,000 – $5,000 = .25%
  • Fee on first $1,000 = $0
  • Net Annual Fee = .25% X ($5,000 – $1,000) = $4,000 X .25% = $10
  • Net Annual fee = $10 / $5,000 = .20%

Because the first $1,000 carries no fee, it actually reduces the net fee you pay on your investment balance.

Fees on invidiual ETF’s

You have the option of investing in ETFs or stocks.  If you decide to invest in an ETF, the ETF has a fee as well.  For example, if the ETF has a fee of .10%, this will add to your .25% management fee.  If you purchase a blend of stocks and ETFs, this will reduce the amount of the fee because you will have less money in an ETF carrying a fee.

Say you invest 50% of your money with an ETF with a management fee of .10%, and the next 50% in stocks.  The above $5,000 investment example will look like this:

Usage Fee

  • Portfolio balance = $5,000
  • Fee on $1,000 – $5,000 = .25%
  • Fee on first $1,000 =$ 0
  • Net Usage Fee = .25% X ($5,000 – $1,000) = $4,000 X.25% = $10

ETF and Stock Fees

  • Money in ETF = $2,500
  • Money in individual stocks = $2,500
  • Fee on ETF money = $2,500 X .001 = $2.50
  • Fee on Stock = $0

Total Fees

  • Total Fees = $10 (Usage Fee) + $2.5 (Fee for ETF) + $0 (Stock) = $12.50
  • Net fee = $12.50 / $5,000 = .25%

As you can see, purchasing individual stock can help you reduce your fee.

Trading

The final sexy feature I want to talk about (and caution you about) is the ability to trade as much as you want included in their .25% usage fee.  Buying one stock with an Ameritrade account can cost $7 and selling a stock with Ameritrade can also cost $7.  So, $14 to buy and sell a stock compared to unlimited buying and selling for .25% may be intriguing.

In our example above, the cost was $10 annually on an account balance of $5,000.  If you make two trades in a year you will come out ahead of the Ameritrade account which would cost you $14 to make two trades.

However, if you have read anything I have written, you know I believe you should hold stock for long periods of time.  Just be wary of the sexiness of buying and selling as much as you want included in a low usage fee.

Don’t go around trading just because it may cost you less!

Setting up M1 Finance

If you would like to signup for M1 Finance, I have an affiliate link.  I recieve a little referral fee if my readers use this link.  If this review has been beneficial, I ask you to use the link so I can keep cranking out content and paying my bills.  If you think what I have written is garbage, I understand if you don’t use my affiliate link. 😉

Here is the link to signup for M1 Finance: Stock Street M1 Finance signup link

When signing up,  first, you will see these introduction screens.

M1 Finance Review Logo M1 Finance Review setup M1 Finance Review setup screen

Next, you will see the three steps.  You will proceed to step 1 – Create Your Portfolio

M1 Finance Review steps

You will then be able to hit Create New Pie

M1 Finance Review portfolio

Here, you have all many different options to create pies.  You can use ETF funds or stocks to build something unique for yourself.

M1 Finance Review pies M1 Finance Review allocation M1 Finance Review stock

You don’t have to create pies alone.  You can also go to the expert pies and pick from pre-made pies

M1 Finance hedge fund pie

After you create some pies, you can select the type of account you need.

M1 Finance Steps

After this, all you need to do is fund the account and you are all set!

 

All in all, I think M1 Finance is a “sexy beast” (said in an Austin Powers accent).  It has a lot to offer and fills a lot of holes apparent in the current state of many robo-advisors.  The ability to purchase individual stocks is a game changer, the low account minimum allows for easy trial of the platform, the fees are quite low for a robo-advisor, and the ability to use features like expert pies are intriguing.

I’m happy to have come accros M1 Finance and I think they have a lot of potential.

Here is my link again if you want to open an account: Stock Street M1 Finance signup link

Thanks for reading!

 

Has anyone tried M1 Finance?  Does anyone have any opinions on using robo-advisors to buy and sell stock?

 

 

Disclaimer: These are the ideas and opinions of the author.  The author is not responsible for the actions of those who read the posts on this blog.  Each individual reader has a unique situation and unique needs.  This blog is not intended to solve those unique situations of the readers.  This blog is not liable for decisions made by the readers of this blog.

You know how websites add a section at the bottom that says, “This post MAY contain affiliate links”?  Well, I am not going to be vague like those websites.  We all know if they write that sentence, the post includes affiliate links.  So, I will tell you straight up that this post DOES include affiliate links.  Use them, I will make a little dough (at no extra cost to you).  Here is my affiliate link disclaimer if you want to read more:  DISCLAIMER

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