How To Invest For Free | The Ultimate M1 Finance Review

m1 finance review

M1 is an easy and straightforward platform that serves as the prefect intro to the world of finance and is an excellent first move for anyone ready to begin investing.

They offer the convenience of a automated-advisor with the customization of a traditional broker in a non-intimidating application that is free to use and invest.

Trading fees are one of the biggest annoyances that an investor will face. Luckily, M1 Finance allows you to invest your money without fees using their 100% free service.

Plus, you don’t need a large sum of money to get going.

You can build a portfolio and begin investing with as little as $100 dollars.

I fell in love with M1 Finance the minute I discovered them and they haven’t disappointed.

Investing with M1 is free, easy, and gives you 100% control over your investments.

You can’t say this with the majority of the robo-advisors out there.

In this M1 Finance review, you will learn everything about the company, how to get started investing, and why they are hands down, the best digital investing company for the DIY investor.

M1 Finance Review Summary
  • Ease of Use
  • Account Fees
  • Account Types
  • Features
  • Customer Service

Summary

M1 Finance is the future of investing. A hybrid robo-adviser that allows you to have control to create a customized portfolio if you life. And best of all, investing is 100% free! M1 does not charge any trading commissions or annual fees. Click here to get started with M1 Finance.

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The Ultimate M1 Finance Review

Who Is M1 Finance?

Before we get into the specifics of how M1 Finance works, let’s first talk about the company and how they are able to offer their services for free.

M1 Finance was founded in 2012 by Brian Barnes and has been available to investors since 2015. As of this writing, the company has over 40,000 accounts and over $150 million dollars in assets under management.

Mr. Barnes became interested in the stock market at a very young age but he realized that the standard practices of the financial industry were stacked against investor’s without a lot of money.

In fact, it was expensive!

So he created a company that makes investing simple and cost effective for investors without a lot of money using the latest technology available.

M1 Finance is a hybrid between a robo-advisor and traditional financial advisor. M1 automates the process of investing, but at the same time, it allows you to create customized portfolios so you have complete control of your investments.

The process to invest with M1 is detailed below. If you are short on time however, here is a great video.

How To Start Investing With M1 Finance

To get started with M1 Finance, you need to do 4 simple things.

#1. Create a free account
#2. Build your portfolio
#3. Create a brokerage account
#4. Fund your account

Create Your Account

To create your free account, simply enter your email, create a password and you are set. There is no minimum to open a free account. However, to start investing with M1, you need $100.

Build Your Portfolio

This is where M1 Finance deviates from other traditional robo-advisors. At this point, other services would have you fill out a risk tolerance questionnaire so they can put you into a pre-selected portfolio made up of exchange traded funds.

But with M1 Finance, you build your own portfolio using the approach known as Pie Investing.

It works by offering a handful of investment choices, grouped into categories or pies. Each pie has various slices, which are the underlying investments that make up the pie.

For example, let’s say you are looking for a new car. You might have no idea what you want to buy, but all cars are grouped into pies.

In one pie you have SUVs and in another pie you have sedans. In each of these pies, you have different makes and models, like a Ford Explorer, a Jeep Grand Cherokee, etc. Each SUV is a slice of the overall SUV pie.

This is how investing with M1 Finance works. You have different investment options grouped as pies and then individual investments or slices that make up the pie.

You can choose an investment pie that M1 created in any of the following categories:

  • General Investing: a diversified portfolio based on your risk tolerance
  • Plan for Retirement: invest for your future retirement date
  • Income Earners: build a portfolio based on dividends and income returns
  • Industries and Sectors: ability to invest in specific sectors and industries
  • Hedge Fund Followers: mimics strategies from some of the most successful investors and reputable hedge funds
  • Responsible Investing: investing options for the socially responsible investor
  • Just Stocks and Bonds: build a diversified portfolio with two ETFs, focused on stocks and bonds
  • Other Strategies: additional strategies based on your interests

M1 Finance Expert PortfoliosFor example, here are the various pies you can invest in within the general investing category.

M1 Finance General Investing Pies

When you click on one of these pies, you get detailed information about what investments make up the portfolio, as seen in the picture below.

M1 Finance Moderate PortfolioM1 Finance Moderate Portfolio HoldingsEach of these investments are the slices and you can choose to invest in a pie as it currently stands, or can completely customize the portfolio to your liking.

Maybe you don’t want a certain ETF in the pie. Just delete it from the pie. Or maybe you want a certain ETF to make up more of the pie. All you have to do us update that slices weighting.

In all, there are a total of 60 pre-built portfolios that are based on the Modern Portfolio Theory, which is the foundation of successful investing. And you can completely customize each one so it fits your goals.

But it doesn’t stop there.

In addition to picking from pre-built investment pies and tweaking them to your liking, you can also create a completely customized portfolio without using any of the pre-built models.

Here is a sample stock-only portfolio I created. I wanted to invest in dividend paying stocks but I couldn’t find a pre-made investment pie that fit my needs, so I created my own.

m1 finance dividend portfolioCreate Your Brokerage Account

After you create your portfolio, it is now time to choose your account type. M1 Finance offers many account types to fit your needs:

  • Individual Account
  • Joint Account
  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Trust

As you can see, whether you want to invest for retirement or in a taxable account, M1 Finance has you covered.

Fund Your Account

The last step in the process of getting started investing with M1 Finance is to fund your account. As I mentioned earlier, you can create an account and build a customized portfolio for free.

But you need $100 to start investing. After you set up a transfer for your opening investment, you are free to choose the amount you want to invest on an ongoing basis.

I originally set up an automatic monthly transfer for $25 but have since increased it. You can also choose more frequent transfers or less frequent transfers. The choice is yours.

Advantages Of M1 Finance

Here is a quick list of some of best features M1 Finance offers investors.

Free to invest. It doesn’t cost you anything to invest with M1 Finance and there are no trading commissions or hidden fees.

Free consultation. If you have any questions, you can schedule a free consultation with a specialist and they will thoroughly walk you through M1.

Many investment options. You can invest in stocks bonds and over 2,000 exchange traded funds with M1.

Dividend reinvesting. M1 will reinvest your dividends for free. This process is unique in that the dividend isn’t reinvested back into the stock or fund that paid it out. Instead the dividend is invested back into your entire portfolio.

Active rebalancing. M1 will invest new money into the investments in your portfolio that need it and not across your entire portfolio.

This lessens the number of taxable events in your portfolio and saves you from losing money to taxes. I go into more detail about this later.

No cash holdings. Once your cash balance reaches $10, it is invested in your portfolio. This ensures your money is working for you at all times.

Fractional investing. No more waiting until you have enough cash to buy a full share of a stock. You can buy fractional shares for free with M1.

M1 Finance Mobile App. The M1 Finance mobile app is a great way to check up on your portfolio and make minor changes on the go. It is laid out nicely and offers everything you need to review your holdings, view transactions, check on your return, and even start a transfer.

Wish List For M1 Finance

Nothing is perfect and M1 Finance is no exception. Here are some of the things I wish M1 Finance offered to make it even better.

Bigger trading window. Trades are placed once per day at 9am Central Time. While this can be an issue for day traders, for all other investors it is a non-issue.

No cash holdings. I listed this as an advantage above because it is. But if you want to build up a cash holding and invest when the market drops, you’ll need to put the money into a savings account and transfer it to M1 when you want it invested.

In reality though, since you cannot time the market, you are better off investing all of your money and not waiting for a pull back.

Nonetheless, it would be a nice feature for those investors who want to build a cash reserve to invest at a later date. As of now, your best option is to put your cash into a high yield savings account. My favorite is CIT Bank.

No mutual funds. This isn’t a huge deal since you can invest in over 2,000 exchange traded funds as well as individual stocks, but if you want to invest in mutual funds, M1 isn’t for you.

Additionally, you cannot invest in preferred stocks with M1 Finance.

Dividend reinvestment. While it is awesome M1 offers free dividend reinvestment, they are not automatically reinvested until you have a cash balance of $10. So if you are paid a dividend of $5, it will sit in cash until you earn $5 more in dividends or you deposit more money to invest.

No Tax Loss Harvesting. M1 doesn’t offer tax loss harvesting for investors. In its place is a tax minimization strategy used on all investor accounts.

This strategy makes it a point to sell your investments in the most tax efficient way possible. Here is a brief summary of how it works.

When you sell from your account, M1 will prioritize the sale in the following manner:

#1. Sell lots that do not result in a tax liability
#2. Sell lots that result in a long-term capital gain
#3. Sell lots that result in a short-term capital gain

By following this strategy you lower the amount of taxes you owe due to capital gains.

M1 Finance Active Rebalancing

When it comes to helping you to earn the highest return possible, most robo investing services offer rebalancing as part of their service.

By making sure your asset allocation matches your target allocation, you increase your return while limiting risk.

But as the market moves, you portfolio will get out of alignment and so too will your asset allocation.

Instead of buying and selling current holdings to rebalance, which is what other robo advisors do, M1 does something different.

They invest any new money to rebalance your portfolio into the investments that are underweight.

This means new money might only get invested into one or two of your holdings as opposed to being spread out across all of your investments. While this might sound counter-intuitive, it is a smart way to help you keep your ideal asset allocation and to limit taxable events.

M1 Finance Costs

Just how much does it cost to invest with M1? The answer is nothing. That’s right, it is completely free to invest with M1 Finance.

You might be wondering what the catch is, as they have to make money somehow. In reality, larger brokers make most of their money by offering other products and services. In other words, any trading commissions they earn doesn’t really pay the bills.

Look at Charles Schwab for example. They offer low trade commissions and tons of no-fee exchange traded funds. Yet they report earnings in the hundreds of millions of dollars. How do they do this?

They make a lot of money from your cash balances. Any cash you have in your account, they invest at a higher interest rate than they pay you. Even at low interest rates, when Schwab has a mountain of cash, they make a healthy income from it.

So how does M1 Finance make money? Here are the main ways:

  • Earning interest on cash balances
  • Earning interest on margin accounts
  • Fees for other services the company offers
  • Lending securities they hold

Rest assured M1 Finance does make money. They just don’t charge you to invest your money, which is an amazing thing.

M1 Borrow

M1 Borrow is new feature that gives you access to a low interest line of credit.

As of this writing, the interest rate is 4% and to qualify you need a brokerage account with M1 that has a value of $10,000 or more. There are no credit checks, no paperwork needs to be completed and if you meet the above requirement, there are no denials.

You can borrow up to 35% of your portfolio value.

Why would you be interested in this? Maybe you want to buy a car and banks are quoting you a high interest rate. Or maybe you want to pay off some high interest credit card debt.

When you use your line of credit with M1, you save money on interest thanks to the low interest rate.

M1 Finance Security

Before you invest your money with any company, you need to make sure they are legitimate and secure. To save you some time, I did the research for you.

Overall, M1 Finance uses the latest available technology to keep your personal information safe and secure. Here are some highlights of their security features:

  • Regulatory Oversight: M1 Finance is a member of FINRA and records show no complaints against them.
  • SIPC Coverage: As with other reputable brokers, your money is protected to the fullest extent of the law by coverage with SIPC.
  • 256-bit SSL Encryption: M1 uses the same level of encryption as major banks and brokers to ensure your information is kept private.
  • Third-Party Custodian: M1 uses a third-party, Apex Clearing Corp, as a custodian of your money. So you can rest assured knowing that investing with this company is not like investing with Bernie Madoff.

Who Is M1 Finance A Fit For?

While anyone can open an account with M1 and start investing, here are the types of investors that make the most sense to invest with M1.

  • Long-term investors: You can invest for the long-term without paying any fees. This allows more of your money to get invested and grow over time.
  • Dividend investors: You can create a dividend portfolio and trade almost any stock for free. Good luck finding this somewhere else.
  • Investors who want customized investments. If you want to build your own portfolio of stocks and ETFs, M1 Finance is your best option.
  • Investors who want to be hands off. If you want your broker to do all of the work for you, M1 is a great fit. Once you open your account and pick your investments, you sit back and let M1 handle everything.
  • New investors: Since M1 does the work for you, you don’t need to worry about rebalancing and other aspects of investing that help you grow your wealth.

Who is M1 not a fit for? There really are only 2 types of investors that M1 is not a fit for. The first is active traders. Since you can only place trades once a day with M1, it is not a viable option for you.

The second is anyone who wants to invest in mutual funds. Again, without this investment vehicle as an option, M1 is not for you.

If you fall under either of these investor types, keep reading for the best alternatives to M1 Finance.

Alternatives To M1

So what are some alternatives to M1 Finance? Here are the best alternatives if you don’t feel M1 is a fit for you.

Ally Invest: This is a great service for active investors. Low trading costs and a mountain of features and tools that you need to be successful. You can learn more here.

Webull: Another option for active traders. Webull offers commission free trading and a wealth of bonuses for investors to take advantage of.

Charles Schwab: This is a good option if you want to invest in mutual funds. They have a large number of no-fee mutual funds for you to invest in. If you are a mutual fund investor, you can’t go wrong with Schwab.

Wealthsimple: This is a robo-advisor that handles most of the investing work for you. They differ from M1 by offering tax loss harvesting. But they charge an annual management fee to manage your money, you cannot fully customize your portfolio, and you cannot invest in stocks. You can learn more here.

Final Thoughts

M1 Financial is free, easy, and gives you 100% control over your investments. That’s really the main thing that you need to know.

Your next step is to create your account and build your portfolio, there isn’t a reason not to.

Sometimes robo-advising services get a bad rap. But, M1 will certainly change your mind with their easy to use platform that takes the pain, uncertainty, and fees out of investing.

It’s clear to see that M1 is the best investment tool of its kind on the market today.

Take this opportunity to open an account and begin investing today. You have nothing to lose!

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