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Robo advisors have become an extremely popular alternative to traditional financial advisors, as many investors prefer to minimize fees.
Three of the most popular robo advisor platforms are Betterment, Wealthfront, and M1 Finance. These companies all have something similar to offer, but there are some crucial differences.
Here we’ll delve a little deeper into Betterment vs. Wealthfront vs. M1 Finance to help you to decide the best option for your circumstances.
The M1 Finance Basics
As a popular online investment platform, M1 Finance allows you control over how you manage money. It’s more of an automated investment platform than a robo advisor, but it accomplishes some of the sames things.
What makes M1 Finance unique is the pie investment model. On sign up, you can create a chart to detail how much money you want in each investment. The system will then invest money deposited automatically according to your preferences. M1 offers a wide selection of professionally-crafted pies, or you can create your own (more on that later).
M1 Finance has been specifically designed for long-term investments. There is an Android and iPhone app that offers a clean and appealing user interface. M1 Finance also stands apart from other platforms with no fees on your investments.
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The M1 Finance Experience
When you start using M1 Finance, you will create investment pies. There are more than 60 pre-made pies created by expert investors, and they can be adjusted to your preferences. There is also the option to build your own pie from scratch. The pie dictates how your money is invested. You can use multiple pies or a single pie. Whenever you add new money, all you need to do is make a deposit to M1 Finance and the money will be invested based on your pies.
As you search for the investments of interest, M1 Finance will provide a performance overview and some basic company information. You can even sort for pies and stocks based on particular characteristics such as socially responsible investment. M1 Finance also offers dynamic rebalancing to keep your portfolio on track.
One aspect that is particularly helpful with M1 Finance is the possibility of fractional shares. This provides investors with greater control and flexibility over a portfolio. Rather than buying an entire share, it is possible to invest in a portion, making it easier to invest in any high-value stocks without the need for vast amounts of capital. M1 Finance investments tend to be highly liquid, so you can quickly transfer money without any long processing times.
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- Commission-free trades
- No account minimums
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- User-friendly platform
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M1 Finance also features M1 Borrow, a lending function. M1 Borrow allows borrowing of up to 35 percent of the value of your portfolio to pay it back at a low rate. This is an excellent alternative to bank or other lender borrowing, as the rates are more attractive, and there is no need for wading through a long approval process. You can automatically qualify for M1 Borrow, as long as your taxable brokerage account is over $25,000.
M1 Finance also offers M1 Spend, a platform that essentially provides a debit card and checking account connected to your M1 Finance portfolio, so you can manage more of your finances in one place.
The Wealthfront Basics
Wealthfront has established a reputation as one of the best robo advisors in today’s marketplace. Wealthfront offers automated investment portfolios, guidance tools, and finance education features to help you to plan for the future. What makes Wealthfront popular is the user-friendly investing approach and the myriad of features offered. You can use the online platform or via the Android or iPhone app.
Wealthfront has been designed to make the entire process of investing as simple as possible with lots of automated features. The platform is especially helpful if you’re saving for an important financial milestone such as saving for college, buying a new home or retirement.
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The Wealthfront Experience
Like many robo advisors, Wealthfront requires new users to answer a questionnaire. You will be asked a number of questions about your finances, including your goals, plans, and risk tolerance. Your answers will be used to create an automated investment portfolio specifically for you.
You can also specify investment strategies such as socially responsible investment, so your portfolio reflects your specific needs. Wealthfront portfolios are designed to be highly diverse, with investments in multiple asset classes to maximize growth potential while minimizing risk. As needed, your portfolio will be automatically rebalanced and reinvested to eliminate guesswork.
All of the automated Wealthfront strategies use investment best practices that maximize growth potential. However, because advanced automated strategies are offered, Wealthfront does charge an annual fee of 0.25 percent.
There are several unique portfolios offered, including a Smart Beta, requiring a starting investment of $500,000 and Risk Parity Fund with a minimum of $100,000 and attracts a larger annual fee of 0.50 percent.
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- Commission-free trades of stocks, ETFs, options, and cryptocurrency
- Buy fractional shares for any amount
- Extended trading hours
- Advanced reporting tools
- IRAs now available
- 24/7 customer service
Smart Beta provides a unique investment strategy with the potential for higher returns. Rather than using conventional index-based investments, your portfolio is created based on a complex formula of different factors. The Risk Parity Fund is the first mutual fund offering from Wealthfront, using leverage on some portfolio investments to achieve higher returns.
Like M1 Finance, Wealthfront also offers a variety of other client features. One of the most notable is the financial planning services. These automated services can be accessed online or through your mobile device. By inputting information about your finances and goals, Wealthfront will create a plan to help you to effectively manage your money to reach your goals. These tools are easy to use, making them ideal for younger people who lack financial planning experience.
This platform also provides a high-yield cash savings account with four times the normal FDIC insurance, making it ultra-secure. If you are already using Wealthfront’s financial planning tools and investment services, it’s a simple way to keep all your finances in one place and save for any financial goals.
Wealthfront also offers a line of credit for its clients. You need to have a minimum of $30,000 in your account, and you will be able to borrow up to 30% of the account value at a relatively low-interest rate of between 4.75 and 6%. Just like the M1 program, Wealthfront’s credit is an attractive alternative to a bank loan for those who already have a Wealthfront account. You can enjoy a low-interest rate to pay back the capital on your own timetable. Additionally, since having an account provides pre-approval, you don’t need to have concerns about qualifying for a loan.
The Betterment Basics
Betterment has approximately $15 billion under management and has become a clear leader in the robo advisor niche. There are two service options to tailor your experience with a basic Digital Plan that has a zero minimum balance and fees of 0.25% of the assets under management each year.
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The Betterment Experience
Betterment is one of the few platforms with no minimum deposit and its investment philosophy is based on modern portfolio theory. The platform offers free financial planning tools before you fund your account and portfolio flexibility and coaching to reach your financial goals.
Betterment has also recently launched a high-yield savings plan checking accounts that make it possible to keep all your finances in one place.
The initial sign up process takes you through goal setting, including your current income and age, suggesting a variety of goals based on your answers with a safety net for expenses. Each of the goals comes with recommended targets and allocation of assets, which is adjustable. However, you can also add personalized goals and auto deposits for greater control.
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- Commission-free trades of stocks and ETFs
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- Fractional shares
- Easy to use and beginner-friendly
- Connect with a supportive community of investors
- "Themes" help you to find investments that interest you
One important area for comparing these platforms is goal setting. Tracking and goal setting is where Wealthfront really shines. The dashboard shows your liabilities and assets in full, so you have a quick visual to check in on your goal progress. Wealthfront also provides third party data to help you to track for specific goals such as buying a property or saving for college expenses. This makes it easy to run scenarios beyond your current investment requirements, so you can plan out how long you can take a break from work and still make sure that all your other goals work.
Betterment also provides excellent goal-setting potential, exceeding M1 Finance. Since M1 Finance is not a registered advisory service, you cannot interact with a human or even a digital advisor. While this does allow you to enjoy an automated investment platform, there are not many tools to set goals beyond some articles about saving for retirement. Betterment has easy to follow steps to help you set goals, allowing you to monitor each separately. The platform allows you to set various goals with a variety of target dates, and your portfolios will vary in reaction to your parameters. There is even a graphic to show your asset allocation, so if you are falling behind on a particular goal, Betterment will encourage you to catch up by putting more aside.
A crucial concern for many investors, particularly new investors, is the free structure of their chosen investment platform.
M1 Finance is particularly appealing for new investors, as there is no commission or fees with the basic account. This platform makes their money through the other financial products on offer, so they can offer trades without any fees for clients. You will only be charged a maintenance fee if there is no trading activity on your account for 90 days, and your balance is less than $20. M1 also has a low minimum deposit of just $100, making it accessible for those with a limited financial background.
Betterment offers two types of plans, which both attract fees. The Digital Plan has a zero minimum balance and an annual fee of 0.25%, while the Premium Plan has a minimum balance of $100,000 and a 0.40% annual fee. Although this is more expensive than M1 Finance, it does provide access to some great tools, including personalized advice, tax-saving strategies, and automatic rebalancing with the Digital Plan and advise on assets that are held outside of Betterment with the Premium Plan.
Wealthfront falls in the middle of the pack for its fee structure. They offer in-depth financial services, but there is an annual fee of 0.25% for this service, and there is a minimum deposit of $500. This makes it an attractive option for those who want access to more in-depth advice that is lacking from M1 Finance.
Winner: M1 Finance
M1 Finance offers a combination of automated investment while offering customization, so you can create a portfolio that is tailored to your specifications. This allows you to create portfolios that contain EFTs or individual stocks with a long-term focus. There is also access to the M1 Finance expert portfolios that combine different investment theories for a wide list of options, and portfolios are rebalanced once a month. You can also force a rebalance at any point in the month. Each of your stocks is displayed as part of a pie chart to represent your total portfolio. So, if a stock shrinks, the slice is also reduced, and when you make a deposit, the slice is shored up.
Wealthfront offers a slightly wider choice of bonds, ETFs, and stocks, in addition to investments in natural resources and real estate. Wealthfront is also a more automated service, so it does mean relinquishing more control. However, the platform does support individual or joint taxable broker accounts, IRAs, 529 college, and trust plans.
The Betterment platform has a more structured portfolio system with five types of portfolios, based on the classic Modern Portfolio Theory. There is a standard portfolio of diversified stocks, bonds, and ETFs, a socially responsible portfolio with holdings scoring well on the environmental and social impact theme. There is also a Goldman Sachs Smart Beta portfolio, an Income focused all bond portfolio, and a Flexible portfolio.
Betterment rebalances accounts dynamically when they deviate from intended goal allocations, and the portfolio will get more conservative as the target dates approach to help you avoid major losses and lock in gains.
Winner: Three-way tie (the best option depends on your specific needs)
M1 Finance offers customer support via email. The website also features a very detailed FAQ section that answers most customer queries and includes video tutorials of specific features.
Wealthfront offers a similar level of customer service with phone and email support. However, Wealthfront only offers assistance during normal business hours on weekdays.
Betterment has an online chat function built into the website and mobile app whenever you need it. Direct customer service is available Monday through Friday 9 am to 6 pm Eastern time, and 11 am to 6 pm at the weekends. If you have a premium account, you will also have access to financial planners at any time; a service that attracts a fee of up to $299 for basic account holders.
Which is Best?
All three platforms are highly-rated robo advisors. M1 tends to score higher on account services and fees, while Wealthfront scores high on portfolio flexibility, and Betterment offers better customer service.
So, the choice of which platform is best for you will depend on your goals and experience level. If you’re an experienced investor wanting to automate your portfolio management, M1 Finance is a great choice, while Wealthfront is better suited to beginners. Betterment is targeted at investors who would typically opt for a self-directed account with an online brokerage.