Investing as a beginner can be intimidating given the number of online brokers available. There are many things to consider, such as fees, minimum deposits, fractional shares, financial advice, and more. How does M1 Finance fare in terms of these factors?
M1 Finance can be considered a good platform for beginner investors, depending on a user’s needs. These are the main benefits of M1 Finance: (1) there is no commission and there are no fees; (2) investors are only required to make a minimum deposit of $100; (3) the platform provides fractional shares; (4) expert portfolios can be copied for no extra cost.
In this article, I will go into depth about why M1 Finance may be considered a good platform for beginners. However, I will also discuss why beginners may want to consider other online brokers, depending on their specific needs as an investor.
Why choose M1 Finance as a beginner investor?
There are several reasons an investor might want to choose M1 Finance if they have little investing experience and are looking to test the waters.
1. M1 Finance is commission-free and charges no fees
Beginners’ first investments are often made with insignificant amounts of money. If a commission is taken from this, profit margins are significantly reduced. This may work well for experienced investors working with large sums of money, as the impact of a commission is negligible on their overall profit.
You may also find that some brokers provide services that are superficial in the sense that there are hidden fees associated with normal investing practices. M1 Finance is transparent and remains fee-free, so beginner investors have one less thing to worry about while investing.
2. The minimum deposit requirement is $100
While many platforms require minimum deposits of several hundred or even several thousand dollars, M1 Finance requires a minimum deposit of only $100. This means that investors can start their journey with a relatively low amount of money that should typically not impact their lifestyle.
Buying a share of a company can cost a lot of money. For example, a single share of Amazon can cost upwards of $3000. Spending that kind of money with little investment experience can be uninviting for many individuals. Therefore, fractional shares provide an excellent opportunity to invest in expensive shares.
This gives exposure to the behavior of markets and opens the door to further investments, as big companies can dictate the performance of the market.
4. M1 Finance has a unique portfolio-builder
M1 Finance structures investors’ portfolios into what they call “Pies”. This is a representation of your portfolio in the shape of a pie, where each slice is one investment. Investors choose a percentage of the Pie they wish to allocate to a stock or ETF.
When investors deposit funds into their accounts, M1 Finance automatically invests the money in accordance with the percentage of the pie set for each investment. For example, if $100 is deposited into the account and one of the investments is 10% of the Pie, M1 Finance will automatically spend $10 on that share, simplifying the process for the user.
Over time, a Pie may weigh heavily in favor of an investment that grew significantly. M1 Finance automatically rebalances your portfolio to maintain the original percentages allocated to each investment.
5. Expert investor portfolios are available free of charge
Investors are given the option to select from several expert investor Pies if they feel unconfident constructing their own. This simplifies the process of investing and may provide insights as regards investment decisions and market behavior, which is ideal for beginners.
6. Very little maintenance is required
If you wish to buy more shares of the investments listed in your Pie on a consistent basis, M1 Finance allows you to set up automatic funding. M1 Finance will take a set amount of money from your linked bank account on a regular basis and then invest it in your Pie for you.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
Why might a beginner opt against M1 Finance?
It’s also important to understand the disadvantages of the platform as it’s not suited to every investor.
1. The platform is not made for active traders
In other words, if you’re planning on investing for the long run, the platform works well. M1 Finance only provides one trading window per day, which is nowhere near enough for an individual looking to actively trade. There is an option to trade during another window, but it’s not free.
2. M1 Finance provides no investment advice
As M1 Finance is a robo-advisor (meaning that its financial services are driven by algorithms), there are no employees to provide users with financial advice. If you’re looking for guidance from real people, M1 Finance may not be suited to your needs.
3. Tax loss harvesting is not an option
Tax loss harvesting is a method by which investors reduce the amount they owe in capital gains tax. However, this may not be something a beginner investor would consider and should therefore not be a deciding factor when choosing an online broker.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
How does M1 Finance compare to other brokers for beginner investors?
I will now compare M1 Finance to other online brokers that are often considered to be good options for beginners.
The primary distinction between the two brokers is that Robinhood does not have a minimum deposit, so users can begin investing with just a couple of dollars.
SoFi’s primary advantage over M1 Finance is that it provides an open trading window, meaning that as long as the market is open, you can trade, whereas M1 Finance only offers one window during the day. SoFi also has no minimum deposit.
Like M1 Finance, Betterment is a robo-adviser. Unlike M1 Finance, there is a management fee of at least 0.25%. However, Betterment has advantages such as no minimum deposit and much better financial guidance. Betterment takes into consideration each user’s need to a much greater extent, so the platform can guide the user’s investments.
This platform offers substantial educational content to help beginners understand common investing practices and advance their ability to use strategies, without compromising on fees or commissions.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
M1 Finance is a strong candidate for beginner investors as it offers commission-free trades, low fees, a low minimum deposit, fractional shares, and several expertly built portfolios to choose from. It’s also very low maintenance and the investment process is simple, which relieves beginners from much of the stress associated with investing for the first time.
However, there are other things to consider. M1 Finance falls short on its ability to provide financial advice. Beginners may feel uncomfortable given the non-human nature of the platform, as there is little guidance to fall back upon. M1 Finance is also not suited to active traders. If a beginner is looking to get into this practice, they should steer clear of the platform.
M1 Finance can be a great option for beginners, but there are many alternatives that each have something of their own to offer. The decision comes down to the specific needs of each investor.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.