M1 Finance Review: Free Investment Tool?

Investing in the stock market is becoming liberalized, thanks to companies like M1 Finance and similar companies in this niche.

M1 Finance is a Robo-advisor that provides comprehensive financial solutions to people who want to save, invest, and plan for retirement.

Before we delve into what M1 Finance offers, we first need to give you some background about the company and tell you what M1 Finance is.

What Is M1 Finance

M1 Finance is a highly rated financial services company that provides investment, banking, and retirement planning services. Launched in 2015 by its founder Brian Barnes, and headquartered in Chicago, IL, the company now has over $1 billion in assets under management.

M1 Finance’s free business model is responsible for its explosive growth in new members. Initially, when the company started, it charged a 0.25% fee to invest. But in December of 2017, the company eliminated the fee and saw its membership base double in only two months.

The service, or at least, the basic version of the service has been free ever since December 2017. M1 Finance has a paid premium version called M1 Plus. It comes with additional perks and features which we are going to discuss below.

Who Should Use M1 Finance?

M1 Finance has been very popular with millennial investors. The service is suitable for anyone who wants to invest in the stock market without spending a lot of money on fees and commissions.

The company allows the ability to maintain a preset portfolio allocation and to automate monthly deposits into your investment account. This feature is useful for people who prefer a hands-off approach to investing and portfolio management.

In addition to investing, M1 Finance also gives members the option to open retirement and bank accounts, and the ability to borrow up to 35% of their portfolio value.

As you can see, M1 Finance is an all-around solid financial services platform that gives you the convenience of accessing the financial markets from your smartphone.

Services M1 Finance Offers

M1 Finance offers a plethora of financial services, all of which we are going to discuss below. M1 Finance primarily provides investing (M1 Invest), loans (M1 Borrow), and banking (M1 Spend) services.

Free Investing With M1 Finance: M1 Invest

M1 Invest is the investment arm of M1 Finance. The platform uses a pie-based system in which investors can allocate a percentage or a dollar value to individual stocks or group of stocks in their portfolio.

For example, an investor can allocate 20% of their investment to Apple, 10% to General Electric, and 70% to a mixture of assets in an exchange-traded fund.

Once the investor sets up their portfolio, M1 Finance handles the rest. The investor will not have to execute any trade manually. M1 Finance will execute all trades automatically using its proprietary trading software.

M1 Finance uses an event-driven automation process to determine when to initiate a trade. Trade events are triggered by indicators such as your first deposit, rebalances, future deposits and withdrawals, cash, and orders.

If an investor wants to initiate their own trades for some reason, M1 Finance has a restricted provision for doing so. For example, M1 Finance will not withdraw money from an investor’s bank to complete a buy order, and the investor’s trade will be placed only during the trading window, which happens once a day.

The downside to a once a day trading window is that the stock prices may change significantly when your trade is finally placed, causing investors to lose money.

Fractional Shares With M1 Finance

With fractional shares, ordinary investors with just $10 can purchase fractions of a Berkshire Hathaway Class A share, which costs almost $280,000 apiece. That because M1 Finance has figured a way to break a stock up into 1/100,000. So, rather than coming up with the money for the full share, an investor need only come up with a fraction.

The sale of fractional shares has become popular, especially on platforms with a younger customer base. With fractional shares, you don’t need thousands of dollars to diversify your portfolio. You can own stakes in multiple companies without spending a fortune.

M1 Borrow: Borrowing Money At M1 Finance

If you have just $10,000 in assets under management with M1 Finance, you’ll be eligible for low-interest loans with your investment account serving as collateral.

M1 Finance members can borrow up to 35% of their portfolio value in as little as 10 seconds.

One reason what this is remarkable is that M1 Finance charges an interest rate of between 2% to 3.5%. That is much lower than the prevailing market rate. You can potentially save hundreds or thousands of dollars with an M1 Finance loan.

M1 Spend: Checking Account With M1 Finance

If you want a checking account that pays cashback in addition to a generous 1% APY, M1 Spend might be your bank. It is rare for traditional checking accounts to give cashbacks, much less pay APYs.

The 1% APY on M1 Spend’s account is not only uncommon, but it is also more than 15 times the national average APY on savings accounts.

Here are some of the benefits of having an M1 Spend account:

• With M1 Spend, you can integrate all your accounts: Investments, line of credit, and checking account.
• You can earn cash back on purchases and a 1% APY
• Receive direct deposits and transfer money
• Get a free M1 debit card
• Zero minimum balance requirement

What Is M1 Plus

M1 Plus is the premium, paid version of M1 Finance. So there’s M1 Finance Basic, and there’s M1 Finance Plus.

If you only want to use the platform for investing, and as a secondary bank account, you wouldn’t be missing much by passing on M1 Plus.

If, however, you plan to take loans or use the debit card as your primary spending card, there are merits to going premium — i.e., M1 Plus.

Below are some benefits of using M1 Plus.

Benefits Of M1 Plus

• 1% APY on the account balance. The basic membership doesn’t pay APYs.
• 1% cashback. The basic membership has no cashback.
• ATM fees are reimbursed four times a month. It’s only once a month with the basic version.
• The Daily ACH limit for M1 Plus is $50,000. ACH for the basic membership is $10,000.
• The interest rate is 2% on loans for M1 Plus members, and 3.5% for M1 basic members.

Those are some of the benefits of getting the $125 a year M1 Plus membership. As I said, if you’re only interested in investing, you can accomplish your investment goals with just the free basic version of the software.

Kinds Of Accounts M1 Finance Supports

In addition to hosting investment and banking accounts, M1 Finance also supports a variety of financial accounts. For example, you can open trust accounts and retirement accounts on the platform.

Trust Accounts

For a minimum of just $5000, you can open a U.S. domestic revocable or irrevocable trust account on M1 Finance. These accounts will both be able to invest in securities. All you to do is complete the new account form and margin agreement and provide the certificate of trust and investment powers to set the process going.

Retirement Accounts

M1 Finance supports the opening of various types of retirement accounts, including a Traditional, Roth, or SEP IRA. M1 Finance, however, does not support SEP-IRA for employees. The only allow SEP IRAs for self-employed individuals.

M1 Finance Mobile App

M1 Finance has an intuitive and highly rated mobile app for both Android and IOS platforms. From the app, you can access all M1 Finance’s products and features. For example, you can open a brokerage and bank account from the app. You can all borrow up to 35% of your portfolio value just by the push of a button in the app.

M1 Finance Customer Support

Members can get help when they submit a request through M1 Finance’s website. Typically, the customer service team is available Monday through Friday from 9:30 am to 4 pm EST, which is also the time the US Stock Exchange operates.

For matters related to changing your email address, you will have to reach them by phone on 312-600-2883.

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Areas M1 Finance Falls Short

Overall, M1 Finance is a great platform, especially for someone who isn’t interested in instant daily trades. But sometimes, market trends might necessitate an investor to get rid of certain stocks quickly. M1 Finance does not make provisions for that. As you may be aware, the platform only allows one trading window per day, and two for M1 Plus members. The “trading window” restrictions mean that even if a stock value drops precipitously, you can’t do anything outside the trading window to mitigate your loss.

The other area is tax-loss harvesting. As you know, M1 Finance does not have tax-loss harvesting, a feature which some of its competitors have. Though M1 has a proprietary tax minimization feature in its software that helps reduce tax liabilities, you can’t know for sure if you’re getting the same tax savings as you would with tax-loss harvesting.

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Final Thoughts On M1 Finance

The fact that M1 Finance is free is, in itself, a significant value for the variety and quality of service it provides. The benefits of using the platform far outweigh its shortcomings.

If you need a highly rated investment platform that gives you the privilege of investing in a diversified portfolio of stocks, bonds, and exchange-traded funds, M1 Finance might be the platform for you.

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