M1 Finance Review 2022 – A Robo Advisor and Brokerage Hybrid

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M1 Finance Review. M1 Finance can perhaps be described best as a hybrid Robo advisor and traditional investment brokerage firm. However, we’re going to classify it as the former, since we think this may well be the future of the Robo advisor sector.

Although it doesn’t offer tax-loss harvesting or mutual fund investing and is not ideal for active traders, M1 Finance is a top-notch robo-advisory service. Its fees are low, it charges no commissions, and there’s no required minimum deposit. So let’s continue with M1 Finance Review

M1 Finance Investment Portfolio Templates Review

M1 Robo investing element provides investment portfolio templates, referred to as “Pies.” The Pies are based on Modern Portfolio Theory (MPT). Most Robo advisors use MPT in their algorithms. But unlike other Robo advisors, with M1, there’s no questionnaire used to determine your investment risk tolerance.

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You can invest all of your money in one of these prebuilt templates or customize it in any way that you want. M1 Finance will then manage your account by maintaining your allocations within the Pie through rebalancing and allocating your new contributions and we will explain to you more in further review.

But M1 works more like a traditional investment brokerage platform in that you can choose your own investments for your Pies. You can even purchase individual stocks and exchange-traded funds (ETFs) within your account — as well as the prebuilt Pies.

M1 Finance Fees & Features

Minimum Investment	$0
Fees	None
Accounts	Taxable, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA,
401(k) Assistance	No
Tax Loss Harvesting	No
Portfolio Rebalancing	Yes
Automatic Deposits	Daily, Weekly, and Monthly
Advice	Automated
Smart Beta	No
Socially Responsible	Yes
Fractional Shares	Yes
Access	Web-Based, iPhone App, Android App
Customer Service	Phone: M-F 9A-5P CT; Email

• Trading window — M1 Finance makes all trades at 9 AM Central Time each day that the New York Stock Exchange is open. No trading can take place outside the trading window.
• Dividends — All dividend income will be reinvested in your portfolio once it reaches at least $10.
• Tax reporting — M1 Finance integrates directly with H&R Block and TurboTax.
• Margin account status — Since M1 Finance doesn’t hold any of your portfolios in cash, your account is established as a margin account if it has a balance of over $2,000. The margin account status enables you to withdraw money quickly from your account without having to liquidate asset positions.
• Free consultation — You can schedule a free consultation with a product specialist who will show you around the platform and discuss how it will benefit you.
• Possible ETFs used — M1 Finance has nearly 2,000 ETFs available for you to choose from, as well as any individual stocks that are available on either the New York Stock Exchange or the Nasdaq. (Preferred stocks are excluded.)
• Account protection — The SIPC covers up to $500,000, including $250,000 in cash, against broker failure.
• M1 Borrow (New) — M1 Finance now offers an instantly accessible portfolio line of credit with an APR of 4.25%. To qualify, you must maintain a margin brokerage account with a balance of at least $10,000. You can borrow up to 35% of your portfolio.

How Does M1 Finance Work?

M1 Finance departs from other robo advisors in that it gives you complete control over the investment process in your portfolio. That even includes security selection. M1 Finance manages your ongoing investment flow. But you are in complete control of how your money is invested. You can even make changes after the fact.

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Pie Investing

As mentioned above, “Pies” are the basis of investing with M1 Finance. During the signup process, you will be offered a suggested Pie with preselected investment categories. Each Pie is a collection of as many as 100 “slices.” Each slice represents an investment — be it a stock, an ETF or even another pie.

The Pie then becomes the tool that you will use to manage your portfolio. M1 Finance has more than 60 pre-built pies for you to choose from. You can also customize them by adding any stocks or ETFs that trade on either the New York Stock Exchange or the Nasdaq.

Once you’ve made your Pie selections, M1 Finance will automatically buy your investments in the correct proportions, both when you initially fund your account and when you add additional funds.

Available Investment Categories

Review M1 Finance Pies available from all of the following categories:

• General Investing — a diversified portfolio based on your own risk tolerance
• Plan for Retirement — invest for your target retirement date
• Responsible Investing — options for the socially responsible investor
• Income Earners — builds a portfolio based on dividends and income returns
• Hedge Fund Followers — mimics investment strategies from some of the most successful investors and reputable hedge funds
• Industries and Sectors — enables you to invest in specific sectors
• Just Stocks and Bonds — build a diversified portfolio with two ETFs, focused on stocks and bonds
• Other Strategies — additional investment strategies to help you find what works best for you

Each of these general Pie categories also offers variations. For example, the Just Stocks & Bonds Pie offers nine different Pies. You can choose a mix of 10% stocks and 90% bonds, 20% stocks and 80% bonds, and all the variations up to and including 90% stocks and 10% bonds.

Each Pie listed also includes the dividend yield, historical performance and risk level.

Filling Your M1 Finance Pie

You can also customize your Pie. M1 Finance offers nearly 2,000 ETFs that you can use in its construction. You can just check off the fund from the list and add it to your Pie. You can also add individual stocks from a similar display.

I chose the 70/30 Pie, which accounted for 50% of my custom Pie, and then added three stocks and one bond ETF. The Pie looked like this:

Once you have constructed your Pie, you save the changes, and it forms the basis of your investment portfolio going forward. You can also create different Pies for various investment goals. There’s no limit to how many Pies you can own in your account (yet another departure from other robo advisors).

One Downside: M1 Finance Tax Minimization Review

M1 Finance does not offer tax-loss harvesting (TLH). But they do offer a new feature called “Tax Minimization” standard on all accounts. This feature enables you to sell asset positions in the most tax-favourable way.

Whenever you sell an investment, M1 Finance prioritizes the sale in a way that will minimize your taxes. The order of assets sold looks like this:

1. Lots that don’t result in a tax liability
2. Lots that result in long-term gains
3. Lots that result in short-term gains

While it’s likely that this strategy will, in fact, minimize your taxes, it doesn’t seem likely to have the same consistent benefit that’s provided by TLH.

Guide for Opening an M1 Finance Account

In order to sign up for an account with M1 Finance, you first need to create a password. Once you do, you’ll be directed into the first part of a three-step process:

1. Build Portfolio
2. Create a Brokerage Account
3. Fund Your Account

The Build Portfolio part introduces you to the M1 Finance Pie concept. At that phase of the signup, you will determine your portfolio as described above. Once you have created your portfolio, you then complete the application process and fund your account.

Pros & Cons

Pros

• Free — M1 Finance charges no broker fees or commissions.
• No Minimum Initial Deposit — You can open your account with no money at all, then begin investing when your account reaches $100.
• Select Your Own Investments — M1 Finance enables you to select your own investments and applies automated portfolio management.
• No Trading Commissions — There’s no fee for buying and selling the securities within each Pie.
• No Cash Investments — Once your account has at least $10 of cash available, it will automatically be invested.
• Fractional Shares — M1 Finance will maintain your Pie allocations using fractional shares thereby fully investing your money.

Cons

• Doesn’t Recognize Outside Holdings — In creating the portfolio allocations within your Pies, M1 Finance doesn’t recognize other investments, such as employer-sponsored retirement plans.
• Not for Active Traders — M1 Finance isn’t for active traders, such as day-traders. Whereas Motif Investing might be a better option.
• No Tax-Loss Harvesting — TLH has become a common component among robo advisors, but M1 Finance doesn’t offer it.
• No Mutual Funds — M1 Finance allows you to purchase only ETFs and stocks.

M1 Finance Review Summary

M1 Finance is one of the more interesting of the automated investment platforms that have been coming out in the last few years. You choose the investments that go into your portfolio.

The platform then performs all of the day-to-day management of your account, including regular rebalancing. Plus, it’s now free. That’s right — there are no longer any broker fees or commissions.

Since you select your own investments (though you could simply default to the pre-built pies), it isn’t quite the fire-and-forget platform that pure robo advisors, such as Betterment and Wealthfront are.

M1 Finance has some similarities to Motif Investing with their up to 30 stocks/ETFs in one motif portfolio. Motif is seeking more active traders whereas M1 is for primarily for buy-and-hold investors who prefer to select their own investments.

At the same time, it can enable you to have control over your investments, without having the day-to-day responsibility of managing the portfolio.

If M1 Finance allowed investment in mutual funds, offered tax-loss harvesting, and retirement planning tools, we’d be giving this platform a higher rating. But apart from those three missing pieces, M1 Finance is very much worthy of consideration

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