New 5.00% APY savings account w/ M1 Plus membership, up to $500 deposit and $15,000 ACAT promos updated. I’ve tried out my share of robo-advisors, which always sounded nice in theory but I eventually became disillusioned as they kept generating lot of unnecessary taxes every time they change their model portfolios to chase the latest and hottest trends. My favorite option is where I can pick my own custom target portfolio, but the robo still does the hard work: 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 make your own custom pie as you like. You have full control! M1 handles the tedious stuff, like rebalancing or dividing a $100 contribution across 8 different ETFs.
- No commissions. Free stock/ETF trades with a low $100 minimum 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. (Looking at you, Schwab…)
- Free dynamic rebalancing. All new deposits (and withdrawals) will be invested (or sold) dynamically to bring your portfolio back toward your target asset allocation. M1 will also rebalance your entire portfolio back to the target allocation for you automatically (for free) whenever you chose, on demand. You don’t need to do any math or maintain any spreadsheets.
- Fractional shares (dollar-based). 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 advantages of buying a mutual fund, but fractional shares solve this problem. ETFs are also usually more tax-efficient than mutual funds.
- Real brokerage account with off-the-shelf investments that you can move out. Some robo-advisors hold special, proprietary funds that you have to sell if you ever leave, possibly creating a big tax bill. (Looking at you, Fidelity…) M1 is built on a regular brokerage account, so you can move your Vanguard/iShares/Schwab ETFs and stock shares out to another broker whenever you want.
M1 Finance investment minimums:
A minimum account balance of $100 is necessary to get started on M1. Once the $100 account minimum has been reached, deposits can be any amount above $10. Retirement accounts require an initial investment of $500.
M1 Finance checks off nearly all the boxes of my brokerage wish list. They do all the managing for me, but according to MY rules. I don’t like it when robo-advisors keep changing their portfolios to match up with whatever is trendy (private equity, crypto, etc). 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 suppose the only thing they could add would be to have the high availability of knowledgeable customer service of a huge company like Fidelity or Schwab. Otherwise, I really like their feature set and I have been putting my recent annual IRA contributions into M1.
If you want to invest in newer factor ETFs that focus on Small-Cap, Value, Momentum, or Quality factors like those from DFA and Avantis, their service makes it much easier to set up a portfolio with lots of ETFs.
How does M1 make money? They have a variety of income streams:
- Interest on idle cash (can be minimized as you can auto-invest all idle cash in the investment account)
- M1 Borrow (you take out a loan, they charge interest)
- M1 Checking (debit card generates fees for them)
- Payment for order flow (same as Robinhood and TD Ameritrade)
- M1 Plus (subscription fee that gets you higher interest rates and other additional perks).
- M1 Credit Card (transaction fees and interest)
M1 Plus. M1 has been aggressively adding features and pushing their premium M1 Plus membership, which costs $10/month or $95/ year after an initial 3 month free trial. Essentially, it makes everything a little bit better, including access to their new high-yield savings account.
- Access to high-yield savings (currently 5.00% APY as of 5/27/23). FDIC-insured up to $5 million.
- Access to M1 credit card (2.5%, 5%, or 10% cash back at 70+ brands, no annual fee).
- Lower rates on margin borrowing (1.5% rate discount).
- Custodial accounts for kids.
- Extra PM trade window.
- Automated “smart” transfers.
Up to $500 New User deposit bonus. Deposit $10,000 or more within two weeks of opening your new M1 Brokerage Account and get a cash bonus of $75 – $500 deposited to that account. See deposit bonus promotion link for full details.
Up to $15,000 ACAT Transfer bonus. You can get up to $15,000 to invest when you
transfer a brokerage account to M1 by June 17, 2023. See ACAT transer promotion link for full details.
Bottom line. M1 Finance is a brokerage account that acts like a free, customizable robo-advisor with automatic rebalancing into a target portfolio. You control the model portfolio, and they do the tedious work. Great for implementation of a low-cost, index or passive ETF portfolio. I deposited part of my Roth IRA contribution with them.
Disclosure: I am now an affiliate of M1 Finance, and may be compensated if you click through my link and open a new account.
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Any idea how they may money?
All that is laid out in Jonathan’s well written article.
Errr….any idea how they make money?
Here is what i found in their website
https://www.m1finance.com/blog/how-m1-makes-money/
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 (a banking product with a debit card that 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).
You forgot the securities lending!
I’ve been seeing this from certain brokers, but do you actually earn any money from the securities lending? Especially if you just own ETFs? I can see maybe if you own a lot of a hard-to-find stock people are looking to short.
Good question, I have added my comments to the original post.
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.
I tried them out a few weeks ago by coincidence. The value add for me comes a couple of ways… in the filters. I like being able to go in and screen for stocks with at least 3% dividend. You can’t buy fractional shares at vanguard. You can buy fractional etf shares, but not stocks. So say I want to build an “pie” / personal etf of 15 stocks paying 4%…I go in and choose them, make a pie, and each time I put money in its invested across the individual stocks I personally chose for my pie. You can choose what percentage each stock will have in your pie. If you want amazon to be 10% of your pie and Phillip Morris 5, it invests accordingly and rebalances.
For me another value add is not being dragged down by some of the stocks that are put in an s&p 500 fund automatically. Maybe their are overpriced and have dragged down the dividend a vanguard fund like VOO is now paying because AAPL has gone so high. Maybe they are just about to be delisted.
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?
I don’t think so, it’s not an “Expert Pie”, I think it just serves as a starting point for your own custom pie.
Any ideas about “secret” fees? I asked this question in your “Public review” post.
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.
Is this an option for retirement accounts too?
Yes you can open IRAs with them. I used them for part of my 2019 IRA contribution.
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
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.
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.
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.
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?
I love M1. I’ve been very happy with the way my pie was done. My picks are doing well.
Looks like they don’t offer any money market funds for storing cash temporarily…
They do have an M1 Spend account that is FDIC-insured and currently pays 1% APY. That is actually much higher any money market fund that I know about right now.
However, I personally use M1 to minimize the idle cash via fractional shares and automatic dividend reinvestment to keep things fully invested automatically. I manage my cash needs elsewhere.
Interesting. Unfortunately, it looks like you have to pay $125/yr to get that 1% rate (thru M1 Plus). Might still be worth it if you have enough cash though (it’s like earning 1% on everything beyond the first $12.5k deposited).
The fee for the first year is a reduced $25
Gotta say, this is EXACTLY what I’ve been looking for. No brokerage (other than the now defunct Motif) would let me set up MY OWN asset allocation and automatically rebalance.
If I can set up an 401K, Roth RO1K, etc., these guys may get all my business.
Look the transfer deadline is 5/31/2020
Thanks, M1 sent me an email that they are extending the promotion to at least June 15th.
Jonathan,
I don’t think there is “automatic” rebalancing done by M1Finance in the general way we think about it(at least, I think about it)
– Rebalancing happens when new money is invested – by investing more in into under performing stocks/ETF’s to bring the allocation back to target
– Rebalancing done when we clink on the “Rebalance” and initiate rebalance
So, if I leave the account without any new investments for couple of years, there is no quarterly/annual rebalancing initiated by M1Finance to reallocate to bring my assets back to my target allocation. This to me is fully automatic rebalancing.
One nice feature I liked with manual rebalancing is, we can rebalance either a specific Pie or entire portfolio.
In any case, I have been using M1 for about an year now and like it.
I really like m1 filters.
Two downsides for me…
Yes, as you mentioned…customer service.
Second is not being able to choose buy price. It’s good for dollar cost averages, but buys go in first thing in the morning. If I’m building positions, I’d rather go in and buy at intraday lows. Especially if I am going to throw 100k plus in to get a bonus.
If you’re not actively managing your money and just want to put like a thousand bucks in the market every month, dollar cost average in to an etf you build yourself, I think m1 is fantastic. To counter their once a day buy, I think I would sit on cash, wait for a couple of down days and then have m1 move your cash into your etf on those days.
Looks like they’re back to their typical bonus amount already ($3,500 at the high end, $40 at the low end).
If you go through the promo link, the fine print on the bottom says good for transfers requested through 2/14/21.
They only place orders at market open unless you pay for Plus, i think that’s the big negative. Who wants ot place orders right at the open?
Can’t wait to see the performance of the my money blog portfolio. It looks like a good selection of stuff. That should do well.
M1 has become trash. They randomly start supporting various ETF based on some algo they have without nary an in app notice.
It also takes days to transfer money even after settlement so you can’t even schedule back to back transfers until a trade completes and transfers.
And the worst part is the lack of transparency in trades. They seem to always get horrible price execution.
Jonathan,
A good review – thank you.
M1 seems like a good platform. They were doing a “put in $10, get $100” deal a few months ago. The current terms just don’t seem that compelling.
Just spoke to rep and they said you need to deposit 5k for the $100. Do you have a referral code I can give them to reference your special promotion?
There’s a referral link in this post above, does it not work? I haven’t had time to try yet.
Referral link works but rep says the deposit has to be 5k not $100
Thanks for bringing this to my attention, I contacted M1 and it does look like they quietly increased this minimum funding amount from $100 to $5,000. The text “There’s $100 waiting for you! Just sign up and fund your free M1 account.” with no additional qualifications is very misleading. The landing page used to look the same, but the funding requirement was simply the minimum required to open an account in general ($100), as is a reasonable assumption in my opinion. I think it’s a bit tacky that they didn’t clearly mark this on the referral landing page. Anyhow, I will edit the post.
How does this work with assets you hold with non-M1 accounts such as your current employers 401K? Does it take those balances into account when determining your current portfolio mix?
No, it only goes toward a target pie that you set and does not automatically adjust for holdings in external accounts. I don’t know of any robo-advisor that does.