M1 Finance Review (+ May 2020 Transfer Bonus)

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Updated. 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 target asset allocation “pie”. (You can add ETFs or individual stocks.) You can simply copy one of the many model portfolios out there, or customize it as you like. You have full control! M1 handles the boring stuff, like rebalancing or dividing a $100 contribution across 8 different ETFs. 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.
  • 0.00% 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).
  • Free 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.

M1 Finance nearly checks off all the boxes of my brokerage wish list. While I’m with them, they do all the managing for me, according to my rules. But since I can choose the exact ETFs that they purchase, if I decide to stop their service down the line, I just end up with a brokerage account filled with ETFs that I can easily move elsewhere. I don’t have to sell anything. I suppose the only thing they could add would be to have the high availability of customer service of a huge company like Fidelity or Schwab. Otherwise, I really like their feature set and I contributed $1,000 of my Roth IRA contribution in order to try them out.

May 2020 transfer bonus. From May 1, 2020 through May 31, 2020, transfer a brokerage account or IRA to M1 and earn up to $2,500. Details here. Here are the bonus tiers:

Valid for individual taxable, joint taxable, and IRA accounts. Account value of the qualifying account must remain equal to, or greater than, the value after the net deposit was made (minus any losses due to trading or market volatility or margin debit balances) for 60 days.

How do they make 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 Finance is a new brokerage account that acts like a free, customizable robo-advisor with automatic rebalancing into a target portfolio. I deposited part of my annual Roth IRA contribution with them.

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 and Credit-Land 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?

  8. They are giving $100 to transfer $20k+

    M1 Finance Promotion Details

    M1 Finance Bonus Account Transfer Amount
    $2,500 $1,000,001+
    $1,000 $500,001 – $1,000,000
    $500 $250,001 – $500,000
    $250 $100,000 – $250,000
    $100 $20,000 – $100,000

  9. IMO,
    It is a good tool for playing around, maybe get a promotional offer or make some bucks from an affiliate link.
    But, major brokerages are providing fractional shares now- fidelity, Robinhood etc and even the option of DRIP.
    M1 finance has a great interface but the problem is you cannot invest less than $10.
    Also, the pie investing is not for everyone, example- I have $5000 to invest at a certain given time, I only want to buy few stocks or ETF as some they may be trading low and avoid other in my pie as they are at all time high. so why would I invest everything in a PIE, I can invest manually in stock through M1 also but then what advantage pie gives.
    I am planning to consolidate all my account for ease of maintenance, even with personal capital I dont get a clear picture of the portfolio when you have so many accounts.
    Planning to consolidate in Fidelity for a great interface and same/free pricing.

    • The biggest thing with M1 Finance is that *I* get to pick the target asset allocation. M1 just does the boring stuff, like rebalancing or dividing a $100 contribution across 8 ETFs. If one of the full-featured brokers offered such a service, I would be happy to see it.

  10. What is the minimum amount you have to put into your pie once you have the initial $100 dollars? Thinking of doing it for my kids and sometimes they only have $20 or $30 dollars to put in. This sounds like an awesome platform if they could put that whenever they want and it would automatically distribute it across their chosen ETF’s. Thanks.

    • Edit: $10 is the minimum additional deposit. $1 is the minimum purchase amount for each security inside a slice. $25 is the minimum auto-invest size (they will wait until your cash balance accumulates to at least $25 before making an automatic investment.

      That’s a good idea, although for my kids I might pick some names of companies they know instead of ETFs. Disney, McDonalds, Amazon, or perhaps Berkshire since I’d like them to know about that too.

  11. 2% loans! I know it will fluctuate but assuming rates stay low for the near to medium term, I might “refinance” into this for a mortgage I was planning to be able to pay off in 5 years anyway. It’s risky but since I can cover the loan by selling other assets in a pinch I’m seriously thinking about leveraging with this loan. Also, margin interest is fully tax deductible unlike the caps on mortgages. What do you all think?

    • The 2% loans really jumped out at me too. I’d consider it for a car loan, but if the numbers work for your mortgage, that could be a good option, too. It’d be great if it provides quick access to funds without the overhead / transaction costs of other financing, and at a lower rate.

  12. According to M1 “Exchanges make money in part through matching buyers and sellers at the ask and bid respectively and pocketing the spread” and this is sort of the way they make money using “order flow”. Maybe I’m uneducated but I thought that market makers, not exchanges, match buyers and sellers and pocket the spread because it’s actually them that buy at the slightly lower price and sell at the slightly higher price, not the exchange itself. Are they just conflating the terms exchange and market maker to try to simplify their answer or what?

  13. I love M1. I’ve been very happy with the way my pie was done. My picks are doing well.

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