M1Finance Review 2020 – Is It Any Good?

• Create your pie – you can choose from one of the platform’s pre-configured expert pies, create your own by choosing investments or customize an expert pie by adding or deleting slices.

• Add funds – M1Finance will automatically buy shares when you add money into your account. The investments are bought according to the percentages you set in the pie, for example, if you set the Amazon slice at 10% and you fund your account with $1000, $100 will be used to buy Amazon shares.
• Delete or add slices – you can modify your pie at any time you wish. To sell, just remove the slice you want to sell and add a new one if you want to buy. M1Finance also rebalances your pie if it shifts from the original allocations over time.

You can also set up automatic contributions and the platform will obtain funds from your linked bank account.

Getting started with M1 Finance

Like other platforms, you need to create an account before you can access the platform. The first step requires you to enter your email address and set a password for your account. The next step is creating a pie by choosing at least three investments that interest you. The pie is saved in case you might want to add it to your portfolio later.

The next step requires you to add your personal information including name, address, city, state, postal code and phone number. You will be required to fill in your country of citizenship, date of birth, serial security number and employment status.

In the financial profile section, you will be required to fill in your income, net worth, liquid net worth, investing experience, risk tolerance and time horizon. You can then add your bank or choose to skip this step and add it later. You can now start building your portfolio. You will be later required to upload copies of a utility bill and driver’s license.

Types of accounts available on M1 Finance

• Individual brokerage accounts – these are taxable accounts for general investments
• Joint brokerage accounts – a shared account eg, with a spouse, or relative
• Retirement – M1Finance offers retirement planning accounts including SEP IRAs, Roth and traditional IRAs
• Trust – these are accounts set up on another individual’s or group’s behalf.

M1 Finance features

M1 Borrow

This is a feature on M1 Finance that enables you to borrow against the value of your portfolio for any purpose. The feature enables you to borrow up to 35% of your account balance at a 4.25% interest rate instantly without going through credit checks, additional paperwork and if you meet the qualifications, your request cannot be denied.

To qualify for M1Borrow, you must hold a taxable account with at least $10,000 balance. Individual retirement accounts do not qualify. Your portfolio must also be diversified. Account holders do not have to enroll for the service for when their account surpasses $10,000, they are instantly given an accessible line of credit, which they can choose to keep in the M1 account or transfer to the bank account. You are only charged for what you use.

There is also no set payment schedule. You can pay back the money whenever you see fit. However, the outstanding balance realizes interest every month. People using this service must be aware of the risks involved including:

• Interest rate rise - If Federal Funds interest rates rise your M1Borrow rate rises too.
• Maintenance calls – if your portfolio value falls below 30% of your account value. Your account will be frozen and you will have to either sell part of your portfolio or deposit additional money to make up for the maintenance call.
• Magnified losses – if the line of credit is used to increase your M1 portfolio investments, any losses in the portfolio will be magnified.

The platform a 0.25% discount for members of its M1 Plus membership. For example, the current interest rate is 4.25%, M1 Plus members are able to borrow at 4.00%

M1 Spend

This is an FDIC-insured checking account that is integrated into the M1 Finance app. It has two levels, the basic M1 Spend (free) and the premium M1 Plus. The basic M1 Spend is included in all accounts to enable borrowing, spending or investing.

It is an all in one money management tool. The M1 Spend comes with an account and routing number to enable users pay bills, receive paychecks or pay with debit card.

Users can also opt into the premium M1 Plus option that costs $125 per year. The M1 Spend feature will be available for use later this year.

Automation

The platform allows users to set up automatic investments and reinvestments once you fund your pies, the system takes over, invests, and rebalances your portfolio automatically to your desired preferences. The platform also uses tax-efficient investing strategies to help reduce the amount owed on taxes.

On the platform’s ‘Funding’ section, you can control how M1 Finance manages your cash balance (dividends and all deposits). You can choose to automatically invest your entire balance once it reaches $10 or set an amount or turn the auto-invest off.

Fractional shares

Some brokerages only allow whole share investing, this makes it hard to diversify small accounts. M1 Finance, however, offers fractional shares investing whereby you don’t have to deposit additional money to buy a whole share. The platform purchases stocks and bonds in the exact proportions that you initially set.

M1 Finance splits every share into 1/100,000th of a share which makes it possible for you to trade in the exact amounts based on your set targets. One advantage of this is, your money won’t sit idle in the account without being invested. You can invest as low as $0.01 in any security, however, the minimum exchange fee for selling a security is $0.02.

Portfolio rebalancing

Rebalancing your portfolio is a tedious and time-consuming process, in fact, this is the reason most people join robo-advisors. M1 Finance offers automatic balancing so that once you put click a button, it does the rest for you. This way, your portfolio will stay on course with your plan.

However, M1 will not initiate rebalancing without your instruction. You will have to initiate it if you want your investment to match your target portfolio. When you add funds or make new trades, the platform’s algorithm will identify the most underweight slices and put funds into those first. When selling, the platform will remove money from the overweight slices first, this way; your portfolio will stay on course.

Tax minimization

The platform does not offer the widely used tax loss harvesting (LTH), instead, they offer a feature called ‘tax minimization’ that enables you to trade in the most tax-favorable way. When selling an investment, the priority will be in the order:

• Losses that offset future gains
• Lots that result in long term gains
• Lots that result in short term gains