Money & Finance,  Worth It

M1 Finance for Beginners: What You Need to Know

Last Updated on May 6, 2021

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Short on time?

Here’s what you need to know about M1 Finance and why they’re a great investment platform for beginners:

  • Free to set up an account
  • Zero commissions and trading fees
  • Low minimum balance
  • Fractional shares
  • Robo-advising that allows customization 
  • User-friendly interface

What is M1 Finance?

Relatively new to the investment scene, M1 Finance launched in 2016. They’re a robo-advising investment platform that offers investors simplicity, customizable levels of control, and self-directed trading. They stand out from the competition through their utilization of investment “pies” and “slices”. When you open an account with M1 Finance, you’ll have the option to choose from 80 different pies. Each of these pies were developed by experts to create various portfolio allocations that can help you achieve your financial goals

Each pie is made of a blend of stocks and ETFs. Each individual stock and ETF is a slice within a pie. You also have the option to create your own pies and slices if you prefer a more hands-on approach.

If you’re transitioning from another investment platform, the pie and slice organizational system might take a bit of time to get used to. However, once you get the hang of it, creating and utilizing various pies and slices within your portfolio allows you to organize your investments as little or as much as you like. You have the option to keep drilling down, creating more and more slices and pies within each slice and pie. 

An example of pies and slices

For example, if you want to create your own pie and invest in specific technology companies, you could create a technology-themed pie. Inside that pie, you could invest in “slices” of Apple stock, Google stock, etc. You can also customize how big each of those slices are within your pie – i.e. set the allocation of each slice. 

Once you’ve created your technology pie, made of up specific investment slices, you could use your technology pie in any of your M1 Finance investment accounts. And just like you can set the size of each slice within your pie, you can set the allocation for your pie within each of your investment accounts. For example, if you have an IRA and a Roth IRA on M1 Finance, you could set your technology-themed pie to account for 40% of your IRA and 30% of your Roth IRA. 

Is M1 Finance good for beginners?

Don’t let the inception of pies and slices intimidate you. While M1 Finance offers investors lots of options for customization, you can keep your portfolio as simple as you’d like by choosing one of their 80 pre-developed expert pies. 

M1 Finance is a great investment platform for beginners for the following reasons:

It’s free to open an account

Opening an account with M1 Finance is completely free.

$0 commission and fees

M1 Finance does not charge any fees for commission or trades. The only fees investors may see are some miscellaneous charges for things like requesting paper statements, IRA conversions, etc. You can read the full list of possible fees here

If investors have ETFs in their portfolio, they may also be responsible for paying the associated ETF management fees (typically between 0.06-0.2%).

Low account minimums

M1 Finance offers very low account minimums for both taxable and retirement accounts. Retirement accounts require an initial investment of $500. Other taxable accounts require an initial minimum balance of only $100. 

Available account types

M1 Finance currently offers the following account types: 

  • Brokerage accounts (individual and joint)
  • Retirement accounts
    • Traditional 
    • Roth 
    • SEP
    • IRAs
  • Trusts 

Fractional shares

M1 Finance offers users the option to purchase fractional shares. What are fractional shares? They are pieces of a share. The ability to purchase fractional shares is incredibly beneficial for beginner investors, especially those who may not have much capital to invest with.

Fractional shares allow you to purchase pieces of shares for much less than what an entire share would cost. Fractional shares makes investing more affordable and expands your options for diversification.

User-friendly mobile app and website

M1 Finance also offers account holders a user-friendly mobile app and website to help manage their funds easily. 

Automatic rebalancing

M1 Finance also provides investors with automatic rebalancing tools. Recall when we went over setting up your pies and slices with corresponding allocations. Automatic rebalancing helps you stick to those allocations by managing your deposits, dividend reinvestments, and withdrawals so that your portfolio doesn’t go out of whack as money moves around. 

What other features does M1 Finance offer?

Customer service

M1 Finance has a designated customer service phone number: 312-600-2883 which is staffed 9am-4pm EST Monday through Friday. You can also send them an email which they will respond to within one business day. 

Investment security and protection

M1 Finance takes your security and investments seriously. Their mobile app utilizes two-factor authentication and their website uses advanced encryption for data transfers. Additionally, your investments are covered under Securities Investor Protection Corporation (SIPC) insurance for amounts up to $500,000. Cash balances on M1 Finance are also insured by the Federal Deposit Insurance Corporation (FDIC) for amounts up to $250,000. 

Borrow

Another feature M1 offers investors is the ability to borrow money. For those with an account balance of at least $10,000, M1 Finance will let you borrow up to 35% of your portfolio. If you opt to use this service, you will be charged an interest rate somewhere in the ballpark of 2-3.5%. Interest rates fluctuate each month and you can check out the most recent rates here.  

A big draw to using M1 Finance to borrow money is that account members aren’t required to fill out any additional paperwork, they won’t be stuck to a specific payment schedule, and the approval process takes less than a minute.

Spend

M1 Finance also has a digital banking connection available to investors. They offer a debit card integrated directly into their platform which allows you to earn rewards, transfer money, make direct deposits, and get cash back. 

M1 Plus

Last but not least, M1 Finance offers a higher tier membership for account holders (above the basic account level) called M1 Plus. This upgrade comes with a $125/year fee and offers additional benefits for investors. There are also perks extended to M1 Plus members who use the Spend and Borrow programs.

The primary driver for investors considering upgrading to M1 Plus is the additional daily trade window. Basic M1 account holders are limited to one trading window per day. M1 Plus members with at least a $25,000 account balance are eligible to participate in two daily trading windows.

 Common M1 Finance FAQ’s

How do I get started with M1 Finance?

If you’re investing for the first time, you can get started with M1 Finance by simply following these steps:

  1. Create an account
  2. Link your bank account
  3. Create or select a predeveloped pie
  4. Fund your account and begin investing

If you already started investing elsewhere, you can choose to simply open a new account, or rollover/transfer an existing account.  

Is M1 Finance really free?

Yes, a basic account with M1 Finance is really free. As we mentioned earlier, they do assess some miscellaneous fees such as those assessed for paper statements. You can check out the entire list here. If you opt to upgrade your account to M1 Plus, there is a $125/year fee. 

However, it’s important to realize that if your portfolio includes ETFs, you’ll still incur whatever management fee the ETF company (not M1) charges. Typically these fees are in the range of  0.06-0.2%.

Is M1 Finance trustworthy?

Despite being a relative newcomer to the finance scene, M1 Finance has proven itself to be a trustworthy investment platform which takes your security and investments seriously. With multi-factor authentication, website data encryption, and FDIC and SIPC insurance takes the necessary precautions to protect you and your money.

What you won’t find with M1 Finance

While no investment platform is perfect, M1 Finance is a fantastic option for most investors. However, they do have a few drawbacks to be aware of: 

  • M1 Finance is not ideal for day traders. The basic plan only offers one trading window per day and M1 Plus offers just two daily trading windows 
  • If you’re looking for advice from an actual advisor, M1 Finance is not for you. Their platform offers great tools to help you build a portfolio, but  investors will need to be comfortable with self-directed trading
  • M1 Finance does not currently offer custodial or 529 accounts
  • Investors cannot currently purchase options or trade crypto
  • No automatic tax loss harvesting
  • Investors are limited to stocks and ETFs (no bonds or mutual funds)

The bottom line

M1 Finance is a great investment platform for most investors, including beginners. With low minimum balances, zero commission, zero fees, fractional shares, and plenty of options for automation and customization, the M1 platform is tough to beat. 

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