M1 Finance Lightning Review

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As noted in my post on best online brokers, my favorite option in the now-crowded “robo-advisor” category is now M1 Finance. Here’s a quick rundown of what makes them different:

  • Fully customizable. You pick your own ETF asset allocation “pie”. (You can add individual stocks too.) You can simply copy one of the many model portfolios out there, or tweak it as you like. You have full control! Here is my pie which I named the My Money Blog Portfolio.
  • No commissions. Free stock/ETF trades with a low $100 minimum account size for taxable accounts and a $500 minimum for retirement accounts.
  • No management fee. Most robo-advisors charge an annual management fee of 0.25% to 0.50% of assets (or force you to own something bad, like artificially low-interest cash).
  • Automatic rebalancing. M1 will rebalance your portfolio back to the target allocation for you automatically (for free). You don’t need to do any math or maintain any spreadsheets.
  • Fractional share ownership. For example, you can just set it to automatically invest $100 a month, and your full amount will be spread across multiple ETFs. Dollar-based transactions were one of the good things about buying a mutual fund, but it seems that ETFs are the future due to their lower costs and tax-efficient structure. Fractional shares solve this problem.

Short version: Free and DIY, of course I like it!

How do they make money? Here’s how M1 makes money. As commissions shrink, this is the business model for pretty much all online brokers now:

1) Interest on idle cash (can be minimized as you can auto-invest all idle cash in the investment account)
2) M1 Borrow (margin loan interest)
3) M1 Spending (debit card generates fees for them)
4) Payment for order flow (same as Robinhood and TD Ameritrade)
5) M1 Plus (premium subscription that gets you higher interest rates and debit card cash back).

Bottom line. M1 is a new brokerage account that acts like a free, customizable robo-advisor with automatic rebalancing into a target portfolio. I am trying them out with my 2019 IRA contribution.

Disclosure: I am now an affiliate of M1 Finance, and may be compensated if you click through my referral link and open a new account.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.



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Comments

  1. Any idea how they may money?

  2. Errr….any idea how they make money?

  3. I’m not understanding the value add is. Vanguard already allows you to enjoy fractional ownership. I can chose to purchase $3.23 of VTSAX and they will let me. On the flip side, I can choose to sell $10.07 of VTSAX and they will let me.

    I can evaluate my portfolio for free with Excel + Mint or with Personal Capital. KISS (keep it simple stupid).

    Am I missing something?

    • The main value add is that you can now manage a more complex portfolio of up to 500 ETFs (not that I recommend that) without having to do all the trades yourself. You could have a portfolio with Value ETFs, Small Value, International, Emerging Markets, High-Yield Bonds, Municipal bonds, etc and it will rebalance for you regularly and with all new cashflows. You don’t need Excel or to place any trades yourself. Also, I can use any ETF from any provider, for example I happen to like the Schwab TIPS ETF more than the Vanguard alternative.

      Between Vanguard mutual funds vs ETFs, a smaller factor is that some Vanguard ETFs are now cheaper than their Admiral shares, and I suspect that number will only grow bigger with time. ETFs have lower internal costs for Vanguard and in order to compete with iShares and Schwab, they are no longer sharing those cost savings with Admiral shares.

  4. Bhadran Narayanan Potti says:

    You have mentioned about My Money Blog Portfolio pie. If you make any changes to the pie % allocation or change ETF in it, will it get reflected in the portfolio of whoever using it?

  5. Any ideas about “secret” fees? I asked this question in your “Public review” post.

  6. Jonathan,
    Do you ever get nervous about the thought of sending your life savings to one of these new start-up brokers?

    • As long as I verify that they are an SIPC-insured broker, then it’s the same as sending money to a FDIC-insured bank. I might not move all my assets over because I am not sure of their customer service, but less about my money disappearing or something like that.

  7. Is this an option for retirement accounts too?

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