Taking A Look: M1 Finance
I recently made an M1 finance account, and have been impressed. Hereβs a $10 bonus link to sign up. Itβs a fascinating platform, and supports many different types of accounts. I just opened a joint account to get someone else involved with investing (and avoid any professional data fees), and Iβve been impressed enough that I thought it was worth sharing.
I think it strikes a nice balance between a self-managed portfolio and an automated Vanguard/Fidelity portfolio. The sleek and intuitive interface is fun and rewarding to use. Almost as if Vanguard somehow paired up with Robinhood. (Thereβs no confetti or anything, but the interface is very modern and smooth).
THIS PORTFOLIO HAS BEEN UPDATED. CLICK HERE FOR THE UPDATED VERSION OF MY PORTFOLIO.
I think M1 is a great place to put a small part of your portfolio. Iβll always recommend Vanguard (or Fidelity, at least), and automated investing, but M1 offers a new type of automated investing thatβs a lot of fun. Who doesnβt want investing to be fun? Unfortunately, the best investors are incredibly boring.
I think M1 strikes a nice balance between fun and prudent.
What Is M1 Finance?
According to Wikipedia, βM1 Finance (commonly abbreviated as M1) is an American financial services company. Founded in 2015, the company offers a robo-advisory investment platform with brokerage accounts, digital checking accounts, and lines of credit. M1 offers an electronic trading platform for the trade of financial assets including common stocks, preferred stocks, fractional-share ownership, and exchange-traded funds. It provides margin lending, automatic rebalancing services, automatic dividend reinvestment services, and cash management services including debit cards. The company receives payment for order flow. The platform has over $6 billion in assets under management. M1's headquarters is located in Chicago, Illinois. As of November 2021, the company had over 500,000 members.β
M1 lets you create your own portfolio, much like a robo-advisor would. Iβm not a fan of robo-advisors. They cost too much and the options are far too limited. Some allow a bit of customization. I think Wealthfront lets you add custom pieces to a portfolio. However, most automated investing platforms like robo-advisors charge an enormous fee, usually 0.35% or more.
M1 has competitive margin rates, a 1% yielding checking account, a 1% cashback debit card, and a credit card. Deposits are available immediately. Investing is done in windows, with buy and sell orders being handled in blocks at the open (and again at 3pm for M1 Plus members. You get one free year of M1 plus which has a few other nice perks.)
M1 tries to automate as much as possible. You can set your allocations however you like, and it will invest in your portfolio, attempting to maintain the allocations you selected. Dynamic rebalancing means that new money is invested first in under-performing issues, attempting to bring the portfolio in-line with your chosen allocations. I have my own thoughts on this.
You can set a maximum cash balance before M1 will invest. This is set at $25 by default, but if you set it higher, it may result in lower trading costs. You can also choose to rebalance at any time.
Dynamic Rebalancing
Iβve always preferred using rebalancing bands, which means only rebalancing my portfolio when a holding has deviated too far from itβs intended allocation. To me, allocations are about how new money is invested. While many people believe a portfolio should try to stick to its allocations, I believe this is wrong-headed.
Essentially, M1 uses a 0% rebalancing band with a $1 minimum deviation. As such, it will invest more heavily in under-performing issues. This has its ups and downs. In short, rebalancing reduces risk, but many studies show that frequent rebalancing can (and does) mute returns.
I believe this logic comes from index funds, which by nature, necessarily remain βperfectlyβ weighted to their constituent index. M1 treats your allocations as if it were an index. While this isnβt a huge deal, itβs something Iβd like to see changed. I think the platform is a fun way to invest, and could encourage good behavior.
An important piece of information to mention is that M1 conducts its trades from 9:30am-10am or so. For M1 Plus accounts (you get 1 year free of Plus), thereβs a second trading window at 3PM. If your account is under 25k, you can only use one window per day, to avoid the possibility of day-trade violations. If you have a regular M1 account, you can only use the morning window.
This can be a turn-off, but it really does encourage better behavior. Thereβs absolutely no justification for people to be going in and out of the market or turning their portfolio over unnecessarily. Itβs best to stay the course, and I think M1 does a good job of making that an interesting and fun process.
You can, at any time, decide to buy or sell anything in your portfolio, but this is done manually. Alternately, you can adjust the allocations and the portfolio will dollar-cost-average its way toward the target allocations using new deposits. (Again, you can choose to rebalance at any time, and itβll sell/buy securities until your target allocation is back to where it started.)
Altogether, itβs a fascinating platform. My main concern is the spreads paid for portfolios buying many different issues. As such, I try to construct portfolios that use the most-liquid options available to limit trading costs.
The Good Stuff
M1 is great for behavioral investing. While I like to keep most of my assets with Vanguard/Fidelity, I always enjoy having other smaller portfolios where I can βexorcise my demonsβ. This lets me stick to my boring investing plan while still having fun in the market.
Their current margin rates are around 1.6% (and I believe this goes to 2.6% when M1 Pro expires, which costs ~$90/y or so), which is an incredibly competitive rate.
Companies and ETFs each have their own logo, and everything is organized into slices/pies. The application on iOS and desktop looks sleek and well-organized. The feature I like the most is the ability to design my own portfolios, and share them with others. Thereβs thousands of portfolios available to browse through. You can add them to your portfolio, use them entirely, or mix and match many different portfolios into one.
The margin rates are very competitive, which should be a great tool for taxable accounts that wish to spend against their portfolio value rather than selling securities. Itβs also great for those wishing to use a bit of leverage. I do encourage people who are younger to put on some leverage, usually 10-30%, but this increased exposure/risk can scare people out of the market, so it needs to be done with caution (and hopefully the advice of a professional).
Their product offering is pretty impressive for a newer firm, and I think theyβre doing a good job. You could theoretically use M1 for all of your finances, from investing, to checking, and savings. Their 1% APR is pretty competitive, and 1% back on debit transactions is great. Unfortunately, you need M1 Pro for some of the features, like the credit card. Rather than an annual fee, itβs part of the M1 Pro package.
Iβve had an absolute blast making portfolios and sharing them. I can invite my friends on and even create portfolios specifically for them. I love the pie/slice system, which lets me organize everything exactly how I like. Itβs just plain fun. I find myself checking the app and tinkering around a lot, and if Iβve learned anything, itβs that itβs important that we are happy/content with investing.
Portfolio Construction
This is the fun part to me. You can select from virtually the entire universe of listed stocks and ETFs. I do think this will trip-up some novice investors, who may not appreciate the effects of buying fractional shares. That said, I was able to find all the ETFs I needed (although some low-liquidity and newer ETFs arenβt listed, like $AVLV).
Iβve been working on several portfolios that I can share with others. Iβve always loved building portfolios, but itβs usually something I do on-the-job and canβt share with my friends or FinTwit. However, I can make my own M1 portfolios and share those!
While building my portfolio, I did notice that if you decide to invest in stocks, that itβs very easy to create a wildly out-of-balance and volatile portfolio. As such, I would recommend sticking to ETFs and highly-liquid large cap issues. You want to ensure that everything you invest in is liquid enough, or you risk losing a chunk of returns.
M1 conducts their trading in blocks, which should greatly improve slippage compared with typical fractional share investing. They do take payment for order flow, which is to be expected with free commissions. Only Vanguard offers truly PFOF-free trading (Fidelity claims to not accept PFOF, which may technically be true, but they execute fractionals against their book and profit quite a lot off of trades, it just may not be called βPFOFβ necessarily). All that said, PFOF is a part of retail trading, and I recommend mutual funds to avoid it.
If youβd like to invest in the same portfolio as me (or any part of it), all you have to do is click this link right here. Iβm not an affiliate or being paid or anything, although Iβll get a $10 bonus for a referral (which will probably just go to my boyfriend, full disclosure). I only put 4% into treasuries. If youβd like the same portfolio but with 7% in treasuries, just click this link instead.
Portfolios:
Remember, you can alter these portfolios however you like. If you increase/decrease the treasury allocation, split the remainder between US Core, Value Stocks, and US Growth (in that order).
Iβve been building portfolios for ages, and must say that I wouldnβt recommend stock-picking at all, and that one of the drawbacks to M1 is that it does seem to encourage stock-picking. I recommend limiting your stocks allocation to 25-30% maximum, and ensuring you have at least 25 holdings, with nothing over 6-7% allocated.
That said, once youβve learned how to use it, itβs rewarding and fun and a very interesting new way to invest. I have a very large number of portfolios that Iβve created, and am happy to share if anyone is interested in seeing others.
All-in-all, Iβd give M1 a 9/10. Iβd prefer if they didnβt do dynamic rebalancing, but thereβs very little to complain about here. Using a simple portfolio of ETFs would, in my opinion, be the most efficient way to use M1. However, you donβt really need M1 to keep a portfolio of a couple ETFs balanced. Itβs a big help when you use a combination of stocks and ETFs, which is what Iβm doing here.
If you have any questions, just drop a comment or hit me up on Twitter. I love to help, and would very much love to see more people investing responsibly for the long-run, avoiding intraday trading, derivatives, and other habits that should probably be curtailed. No offense! I can overtrade sometimes too, itβs a very human instinct.
Much love, and good night. I have to go to work, and Iβll come back to add more here later.πππ
βAvery
For those whoβve asked for it, hereβs a link to my βValue Stocksβ portfolio, click or copy-paste: https://m1.finance/vFY6My-QdWN5
Remember, I donβt recommend going over 25-30% in allocations to stocks, but you can slot this into an existing portfolio or add your own additions to it. You could, for example, put 75% into $SPY and the rest into this portfolio. You could go shopping and pick out portfolios on the site, or build your own from the bottom up!
Addendum:
Accounts are free to set up, and thereβs a bonus if you deposit X amount in your first 14 days. You can also transfer accounts to them, for which theyβll give you a pretty decent bonus payment for. However, they appear to charge $100 for outbound transfers and another fee for closing an IRA. As such, I would not recommend sending a Fidelity portfolio here, as they may deny paying for a transfer BACK to Fidelity if you decide you donβt like it.
Instead, Iβd send it to IBKR and *then* send it to M1. Fidelity is where I send my funds when I need my transfer fees reimbursed, but they typically only reimburse accounts with 25k, although theyβll cover fees for smaller accounts upon request.