M1 Finance Review: A Free Alternative to Robo Advisors

What if you could invest your money, borrow money when you need it, and get cashback on daily purchases all in one place? M1 Finance is an investing app that does just that, and much more. Their app helps you to get started investing for free with automatic investments, the ability to build your own fund, and the ability to invest in fractional shares with any dollar amount.

What is M1 Finance, and how does it work? Is it worth using as your primary source of investing, spending, and borrowing? Are there better options available than M1 Finance for your investing needs? Much more on these questions in this M1 Finance review.

Overview of The M1 Finance Investing App

M1 Finance is a versatile investing app that lets anyone invest in the stock market for free and automatically. Some may consider M1 Finance to be a “robo advisor” due to the automation factor, however, but there are some key differences between M1 Finance and popular robo investors (you can read our comparison of Betterment vs. Wealthfront vs. M1 Finance). We’ll cover the most important details of M1 Finance here, so you can decide if it might be a good option for you.

Perhaps the most exciting feature of the app is the ability to build your own fund (called the “pie”) within your investment account.

You can invest in individual stocks as you wish, as well as create a fund and have a portion of your money go towards that fund just like an exchange-traded fund (ETF) or mutual fund.

→ Open your M1 Finance account through this link to get a $20 bonus.

Fees & Minimum Balances

Nowadays, it seems that fees are the number one thing that distinguishes investment accounts from each other. Some apps charge high fees; others charge no fees on specific products, and others have no fees at all but with slightly different services.

For example, M1 Finance charges zero fees to open an investment account and requires no minimum balances to maintain your account. Their fees will be found on other features such as their M1 Spend Plus account (discussed below), their borrowing feature, and other additional fees like returned deposits, for example. However, the basic M1 Finance account is free, and it will meet the needs of the average investor.

Details	Betterment	Wealthfront	M1 Finance
Minimum to start an account	no minimum	no minimum	no minimum
Fees	0.25%	0.25%	free

Available Account Types

M1 Finance offers multiple types of investment accounts and financial accounts, making it an excellent overall financial app with investing at its core. The available accounts include:

• Individual & Joint Investment Accounts: A regular brokerage investing account that allows you to invest in the stock market for free.
• IRA Accounts: They offer both Traditional IRA’s, Roth IRA’s, and SEP IRA accounts for retirement savings.
• Trust Accounts: Accounts whose assets are legally owned by a trust and managed by that trust.
• M1 Spend: An interest-bearing and cashback checking account.

Available Investments

M1 Finance only offers stocks and exchange-traded funds (ETFs) through the app, and some funds may include bond funds. They also give you options to create your own funds called “pies” and even choose from pies created by experts that have different investment objectives, such as a target-date retirement fund, a growth fund, or a fund comprised of income investments such as dividends and bonds.

Understanding pies is very important if you’re trying to decide if M1 Finance is the right option for you. The pies will determine how your money is automatically invested by M1 Finance. You can choose the investments to include and the amount that you want to invest as a percentage of the overall pie. If you’re more of a hands-off investor, you can select from the available pies that have been created by professionals. You can use multiple pies or just a single pie.

Once your pies are set up, all you need to do is deposit money to your M1 Finance account and it will be automatically invested accordingly. 

→ Related reading: 10 Legit Ways to Get Free Stocks

Why Invest with M1 Finance?

What sets M1 Finance apart from any other investing app? Although they are a straightforward investing app with the necessary investing instruments such as stocks and ETFs, their approach to how you can build your own funds and construct a customized portfolio is the most prominent feature that sets them apart from the rest.

Create Your Own Fund

Sure, with any investing account, you can go and pick your favorite stocks and have multiple companies in your account. But M1 Finance, on the other hand, lets you build your own customized fund and include it into your portfolio as if it was another ETF.

This means your overall investment portfolio can be comprised of individual stocks that you picked, as well as a portion going to the separate fund you created. If you wanted to make a fund of environmentally friendly companies, you could do so and have that fund be an investment in and of itself, along with all your other chosen stock companies in your portfolio.

In short, it’s the most customizable way to build an investment portfolio that I am aware of to date, and this functionality is available to any investor completely free of charge.

Invest in Fractional Shares

This is a modern investing feature that aims at making it possible for anyone to invest any dollar amount into any company, regardless of the share price.

Traditional investment accounts only allow that you purchase investments with whole numbers of shares (1, 2, 10, 500, 507, etc.) and not fractional shares (0.93, 1.5, 100.5, 500.35, etc.). Modern investing apps no allow you to base your purchases on dollar amounts and not share amounts. This means if you purchase just $5 of Apple, you’ll own a fraction of a share of Apple stock.

With M1 Finance, you can purchase fractional shares of any stock or exchange-traded fund, or even any dollar amount of the customized funds you created personally!

Commission-Free Trades

You pay no trade commissions when you use M1 Finance. Many traditional investment accounts would charge you trade commissions of $9.99 or more just to place a trade.

Automatic Investing

It’s one thing to have an automatic deposit to your investment account, and it’s another to have your investments automatically invested and diversified for you. M1 Finance lets you set up recurring investments to have your deposits automatically invested into your portfolio, and this is where the pies come into play.

You will set up how your portfolio is allocated (based on percentages of your portfolio), and when the automatic investment transaction occurs, the money will be spread out across your portfolio as previously assigned. You can also change your portfolio allocations at any time.

Diversification

Diversification helps lower the risk of investing by not “putting all your eggs in one basket.” By having your money spread across multiple investments, you are diversifying your portfolio and limiting your overall risk.

Since your portfolio will be comprised of your favorite stock companies, favorite ETFs, your customized funds that you’ve built (pies), and/or your favorite expert-created pies, each time you invest more money into your account, it’s all automatically diversified among your investments.

Dynamic Rebalancing

Rebalancing your portfolio means adjusting your portfolio back to the original allocation percentages. If your portfolio is made up of 10 companies with 10% of your portfolio in each company, chances are, those companies’ prices will fluctuate over time. This naturally adjusts your portfolio’s overall balance, making them more or less than the original 10% allocation.

M1 Finance follows a dynamic rebalancing technique. This means that each time you deposit and invest more money, your money automatically flows to the investments that are below their designated allocations to bring the percentages back to their target ratios. Companies or investments that are over their allocation percent will naturally lower to their target percent as you add money to the under-allocated positions.

In other words, you are taking advantage of buying more shares of companies whose price appears to be lower for the time being. As the saying goes, “buy low, sell high!”

M1 Spend

M1 Spend is a basic Visa debit card and checking account that has the potential to earn 1% interest (currently) on the unused money, as well as 1% cashback on all of your purchases. To take advantage of the 1% cashback and 1% annual interest, you need to become an M1 Plus member, which has a yearly fee of $125.

Otherwise, if you wish just to have the M1 Spend checking account without the cashback options and the interest rate on unused money, you can open a regular M1 Spend account with a basic Visa debit card for free.

In order to offset the fee of $125 for the M1 Plus Spend account, you would need to either maintain a high average balance of $12,500 to earn $125 per year in interest, or plan on spending at least $12,500 on expenses to get at least $125 cashback.

Or, you can have a combination of a higher balance and spending habits to gain at least $125 in cashback over the course of a year. If this sounds like you, then you’ll be happy to pay the M1 Spend Plus fee.

M1 Borrow

Perhaps the other most popular feature offered by M1 Finance is their borrowing options. If you have an account balance of at least $10,000 in investments, then you can borrow 35% of your total balance without any credit checks at an affordable interest rate.

If your account balance is $100,000, then you can automatically access $35,000 as needed with no questions asked, and your money stays invested. If you don’t pay the money back, then they would just deduct the balance from your account value. 

The borrowed money can be used as you please and can be paid back in full at any point in time. 

→ Open your M1 Finance account through this link to get a $20 bonus.

Where M1 Finance Falls Short

Not all things in life are perfect, including M1 Finance. While it is, in my humble opinion, one of the top options for modern investing apps today, it certainly has a few shortfalls that are worth noting.

Trading Windows

Unlike most other investing apps, M1 Finance uses investing windows to invest your money. In other words, they submit all the buy and sell transactions at one time in the morning and one time in the afternoon, and potentially an extra trading window for M1 Plus members.

Why is this a shortfall? If you’re a day trader, then this will eliminate M1 Finance from your list of potential brokers to work with. If you want to take advantage of a price that may change within minutes or hours, then you have no ability to buy at the market price at the time you want with M1 Finance since they submit their trades during one of their designated trading windows.

In short, this means that when you place a trade within your M1 Finance account, it will not be placed in real-time and will be placed at the next most recent trading window, which could be later in the day, the next day, or the next week if you placed a trade on the weekend.

Depending on your approach to investing and your goals, this may or may not be a big issue.

Access to Alternative Investment Tools

Sophisticated investors who wish to have multiple investment tools and vehicles in one place may be displeased with M1 Finance. Why? You only have access to necessary company research reports, company info, and basic info on company financials.

Furthermore, there are no options to trade mutual funds, trade on margin (unless you consider your M1 Borrow feature a margin account), and no options contracts. If this is you, you might want to consider another investment app such as Robinhood, for example. 

Slow Transactions Processing for Withdrawals

This comes from personal experience. I’ve owned an M1 Finance account for a long time and have loved it thus far. However, I will note that should you decide to withdraw any of your money (whether invested or uninvested), you should expect to wait much longer than usual.

In fact, when I withdrew just a few hundred dollars from my M1 Finance account, it took over two weeks to see the money deposited into my bank account. In this day and age, that seems ridiculous given the fact that the technology exists that allows us instant transfers.

If anything, it shouldn’t take any longer than 3-5 business days if the money is invested, and no longer than 1-2 business days for withdrawal if the money is not invested?

Who Is M1 Finance Best Suited For?

M1 Finance is for the long-term investor who likes options to customize their portfolio exactly how they want it. The idea of creating your own pies and adding them to your portfolio is a big deal to some investors. It gives them the ability to customize their investments and portfolio allocation completely. This alone is a feature not offered anywhere else that I am aware of.

Furthermore, investors who have the following traits or needs will benefit from M1 Finance:

• Those who wish to invest in fractional shares
• People who want to invest for free including commission-free trades
• Individuals who wish to take advantage of borrowing against their portfolio as needed
• Those preparing for retirement or have a trust portfolio that they wish to customize and manage for free

If this sounds like you, M1 Finance is a world-class investment app that won’t disappoint.

You may also be interested in learning more about the investment platforms in the table below.