M1 Finance vs. Robinhood: What's The Difference?

M1 Finance vs. Robinhood: What’s The Difference?

When choosing your broker there are so many factors to take into account. But, in the end, which broker is best for you depends almost entirely on your investment goals.

M1 Finance and Robinhood are both serious contenders for the most popular and innovative ‘Millennial Brokers’. But what exactly is the difference between M1 Finance vs. Robinhood and which is better?

M1 FinanceRobinhood
Features⭐⭐⭐⭐⭐⭐⭐⭐⭐
Usability⭐⭐⭐⭐⭐⭐⭐⭐⭐⭐
Fees⭐⭐⭐⭐⭐⭐⭐⭐⭐⭐
Research⭐⭐⭐⭐⭐⭐⭐
Security⭐⭐⭐⭐⭐⭐⭐⭐
Financial Freedom⭐⭐⭐⭐⭐⭐⭐⭐
Total⭐⭐⭐⭐⭐⭐⭐⭐⭐

Overall, M1 Finance is better than Robinhood. Both, Robinhood and M1 Finance offer commission-free trades. M1 Finance simply offers more features such as auto-investing and auto-rebalancing that are vital for long-term investors.

Additionally, the benefit of controlling all of your finances in one place with M1 Finance Spend and Borrow far outweighs Robinhood’s cryptocurrency and options trading add-on products.

Introduction

In this post, we will examine the similarities and differences between M1 Finance and Robinhood. We will start out by looking at what M1 Finance and Robinhood exactly are and what they are best used for. In the following section, we will compare the different features that are available and conclude which ones are most useful.

Finally, we will. Discuss the pros and cons of each broker platform and look at its usability, fees, customer service, security, and its potential to help us achieve financial freedom.

M1 Finance vs. Robinhood – Overview

M1 Finance and Robinhood offer distinct features and are geared towards different types of investors. So, what exactly are M1 Finance and Robinhood and what are they best used for?

What is M1 Finance?

M1 Finance is a finance app and platform that lets you invest, spend, and borrow all in one place. You can create your own portfolio allocations and have M1 Finance automatically invest for you. And all of this can be done free with M1 Finance.

What is M1 Finance?
What is M1 Finance?

You start out investing with M1 Finance by building your portfolio pie, setting automatic investment thresholds, and maintaining it with little effort and one-click rebalancing. With M1 Finance Borrow you’ll be able to get a flexible line of credit based on your portfolio value.

Use this to either enter a leveraged position, pay off other higher-interest debt, or for your next vacation. Lastly, with M1 Finance Spend you can control all of your finances in one place: pay your bills, accept direct debits, and transfer instantly between your checking and investment account.

There are two types of accounts you can open with M1 Finance: The Basic M1 Account and the M1 Plus Account.

With the Basic Account you can also invest for free without commissions or fees, access a portfolio credit line at 3.5% APY and open a checking account.

The M1 Plus Account offers a few more features but the main premises are the same: free investing and automation. In addition to that, you can borrow up to 35% of your portfolio value at only 2% APY and get 1% interest on your checking account balance.

Click here to read my comprehensive M1 Finance review.

What M1 Finance is best for

  • Long-term investing
  • Dividend investing
  • Index fund investing
  • Automated investing

M1 Finance is best for long-term investors looking to automate large parts of their investment process but still remain flexible and in control of their portfolio. It is also an excellent resource for dividend investors as it allows for easy dividend collection and reinvesting.

In a way, it perfectly fills the crucial gap between traditional brokers and over-automated robo-advisors like Wealthfront and Betterment.

What is Robinhood?

Robinhood is a commission-free stock trading app that lets you easily place and execute trades. You can trade stocks, ETFs, options, and even Cryptocurrencies without any commission all from the convenience of your phone.

Recently, Robinhood also introduced fractional-share investing enabling its users to invest starting with just $1. And if some of your capital remains uninvested you will receive 0.30% on any remaining balance.

Robinhood also offers a premium account feature called Robinhood Gold. With Robinhood Gold you’ll get bigger instant deposits, more research and market data, and access to margin investing.

What Robinhood is best for

  • Day-trading
  • High-frequency trading
  • Margin trading

As perhaps becomes clear from Robinhood’s feature range, it targets investors and traders looking for instant trades and speed in execution. Robinhood’s product range is not designed geared towards long-term investing but rather encouraging speedy transactions and day-trading.

M1 Finance vs. Robinhood – Features

FeatureM1 FinanceRobinhood
Stocks/Bonds✔️✔️
ETFs✔️✔️
Options✔️
Forex
Cryptocurrency✔️
Fractional Shares✔️✔️
Auto-Investing✔️
Auto-Rebalancing✔️
Margin Account✔️✔️
Checking Account✔️
M1 Finance vs. Robinhood – Features

Stocks/Bonds

Both M1 Finance and Robinhood let you invest in stocks and bonds. You are able to pick individual stocks and bonds on both platforms and create your very own portfolio mix.

M1 Finance offers more than 6,000 exchange-listed stocks and bonds. Among those are securities listed on the NYSE, NASDAQ, and BATs.

Robinhood has 5,000+ stocks and bonds available for your to invest in. This includes securities from most U.S. exchanges and some international ones.

ETFs

M1 Finance and Robinhood also both offer ETF investing.

ETFs are exchange-traded funds that are comprised of a basket of securities (stocks or bonds) and bundled up together into a single fund. You can buy individual shares on M1 Finance or Robinhood for most ETFs on the market today.

Options

M1 Finance does not offer options trading, Robinhood does. With Robinhood Finance you can start option trading as soon as you open your account.

Options allow for placing bets on future prices of securities. Essentially, options trading is akin to betting on outcomes of sporting events, i.e. gambling.

This difference in features goes hand in hand with their respective investor target audience.

Forex

Neither of these two brokers offer forex trading.

Forex is short for foreign-exchange and is used to often open highly leveraged positions on different FIAT currencies.

Cryptocurrency

M1 Finance does not offer cryptocurrency trading. With Robinhood Crypto you can buy and sell Bitcion, Ethereum and couple more cryptocurrencies commission-free 24/7.

However, it is worth to point out that you don’t actually own any of the cryptocurrency you are buying. This means you will not be able to transfer, stake, or use your crypto in any other way with Robinhood.

But for simply betting on prices, Robinhood certainly offers a useful feature for investors who want easy exposure to the crypto sector.

Fractional Shares

Both M1 Finance and Robinhood allow you to invest in fractional shares starting at just $1. This feature is extremely useful in making sure that all of your capital is put to work and earning returns.

With most traditional brokers you amount of capital you were able to invest was set by the price of a given security. By pooling investors’ funds M1 Finance and Robinhood are able to offer this feature conveniently to all investors.

Auto-Investing

With M1 Finance you can set your investments on autopilot while staying in full control. Robinhood does not offer this feature.

Setting up auto-investing with M1 Finance is as simple as toggling the auto-invest switch. This will invest your remaining balance in your chosen portfolio pie in the next trade window as soon as your cash balance exceeds $20.

M1 Finance Auto-Invest
M1 Finance Auto-Investing

In addition to this, you can also set up automatic transfers from your bank account to your investment account either weekly, bi-weekly, or monthly with a few clicks. This auto-top up feature is also available with Robinhood.

Recurring deposits with M1 Finance

Auto-Rebalancing

Rebalancing is the act of readjusting your portfolio allocations if they have strayed from your target allocations due to market movements.

M1 Finance lets you rebalance your portfolio with the click of a button. There is no simple automated way to rebalance your portfolio with Robinhood. Of course, you can still rebalance with Robinhood but you would have to calculate your allocations first and then manually place the corresponding trades.

Margin Account

Margin trading is available both with M1 Finance and Robinhood. However, they work quite differently with each:

With M1 Finance’s basic and premium account you are able to simply borrow up to 35% of your portfolio value on a portfolio of more than $10,000. This loan will actually just be transferred to your bank account and you can do with it whatever you like, also for margin trading.

Robinhood allows you to open a margin account only with their Gold account starting at $5 per month. The money you leverage also will not be freely available for you to withdraw and spend but rather only for leveraging an existing or new trade position.

As a result of this discrepancy, M1 Finance’s feature gives us a lot more flexibility in terms of how we want to use our margin. Robinhood’s margin feature is behind a paywall and rather limited.

Checking Account

Lastly, M1 Finance offers a full – FDIC-insured – checking account. You can use this account to pay bills, accepts direct debits, and combine all of your finances in one place.

Robinhood simply does not offer a feature like this.

M1 Finance vs. Robinhood – Pros & Cons

M1 FinanceRobinhood
Features⭐⭐⭐⭐⭐⭐⭐⭐⭐
Usability⭐⭐⭐⭐⭐⭐⭐⭐⭐⭐
Fees⭐⭐⭐⭐⭐⭐⭐⭐⭐⭐
Research⭐⭐⭐⭐⭐⭐⭐
Security⭐⭐⭐⭐⭐⭐⭐⭐
Financial Freedom⭐⭐⭐⭐⭐⭐⭐⭐
Total⭐⭐⭐⭐⭐⭐⭐⭐⭐
M1 Finance vs. Robinhood – Pros & Cons

Features

In terms of features, M1 Finance simply outperforms Robinhood. Although both platforms cover all of the basic investment needs, M1 Finance goes beyond that and offers enticing features such as auto-investing and auto-rebalancing.

Robinhood, on the other hand, also offers cryptocurrency and option trading but is rather limited in the ways you can invest and manage your portfolio.

Overall, we could perhaps summarize it like this: Robinhood offers more investment products but M1 Finance offers more ways by which to invest efficiently and manage your investments for the long term.

However, recently Robinhood has made significant strides in upgrading its investment experience. Not too long ago Robinhood introduced fractional shares – a feature that M1 Finance had implemented from the start – and simple dividend reinvestment plans. This feature comes close to M1 Finance’s auto-invest feature but does not quite match it.

Furthermore, many of the features that M1 Finance offers in their free basic account are only accessible in Robinhood’s paid Gold account.

Usability

When it comes to usability and the overall user experience both Robinhood and M1 Finance have done an excellent job. The platforms and apps are intuitive to use and make managing your finances and investments a breeze.

One difference between M1 Finance and Robinhood here is that you can only use Robinhood through their app and there currently is no fully functional web application available. M1 Finance, however, has a functional mobile app as well as a working web application.

How Does Robinhood Make Money? - HedgeTrade Blog
Robinhood App

As a result of these differences design focuses, it can be difficult to get a good portfolio overview with Robinhood. Everything is more cramped, simple which lends itself to swiping up and down as you would on your mobile devices.

M1 Finance simply offers a more comprehensive suite of products and design features to manage your portfolio over the long-term and track your financial goals.

M1 Finance Dashboard
M1 Finance Dashboard

Fees

Both brokerage platforms pride themselves on charging no fees or commissions at all, and they have succeeded. In this day and age, it seems almost unthinkable to pay a $5 commission on a single stock trade.

But there are some differences in how M1 Finance and Robinhood are able to offer these no-commission trades. While Robinhood turns a profit by selling your data to high-frequency traders, M1 Finance makes money from interest on cash reserves, lending securities, and margin loans.

Although the exact differences in how each platform manages to stay profitable are not revealed, M1 Finance certainly is more transparent in the way they operate. Nonetheless, Robinhood is also able to offer commission-free trades to its users despite their potentially dubious business practices.

Research

Neither M1 Finance nor Robinhood is adequately equipped to handle extensive research demands. You will be able to find the basic information on most common stocks, bonds, and funds but for comprehensive research and analysis, it’s best to look elsewhere.

M1 Finance offers a basic overview of each investment product showing the historic prices, returns, some other basic data. You also get a short description of the company/fund profile and perhaps also some relevant news articles.

M1 Finance Research

Robinhood’s available research data is even more limited than M1 Finance’s. All we get here is a simple graph of historical prices and some basic financial data. Given these data points only it would be extremely hard to make an informed decision.

Robinhood Research
Robinhood Research

In summary: if you rely on extensive research to make informed investment decisions, it’s best to look outside of M1 Finance and Robinhood first. However, for basic information and data points at a glance, both M1 Finance’s and Robinhood’s research capabilities will suffice.

Security

Regarding the security of our funds with each broker, we need to examine two different aspects: the security of the applications themselves and protection from fraudulent account use, and the safety of the brokers themselves.

In terms of site security, both M1 Finance and Robinhood are set up fairly well. Most importantly both offer two-factor authentication to prevent your account from unauthorized access.

However, the 2FA both sites use only enables you to receive confirmation codes via text messages and not through code generators. Text messages have been liable to hacking and social engineering in some cases. Generating your security codes via a third-party authenticator is considered better practice.

When it comes to the safety of funds held by M1 Finance and Robinhood, there are few complaints to be made. Neither are FDIC insured (since FDIC insurance only applies to bank accounts) but are registered with FINRA and SIPC.

M1 Finance Security
M1 Finance Security

These central organizations require certain safety standards to be implemented that protect customers funds in order to become a member. Both M1 Finance and Robinhood have fulfilled these requirements.

In addition, the M1 Finance checking account is also FDIC insured. For more detailed info on this check out this article: Is M1 Finance Safe?

Financial Freedom

Finally, we’ll look at how well M1 Finance and Robinhood stack up when it comes to helping us achieve financial freedom.

While there are several ways to become financially free, long-term, index fund investing has proven to be one of the most reliable methods to gain financial freedom. In light of this, I will rate both brokers on their features that allow us to build and track an index fund portfolio over time.

Here, the winner is quite clear. Although both contenders let you invest easily and free in most available index funds, M1 Finance simply offers the better tools to manage your portfolio over the long term.

Just their auto-investing feature alone can help you become financially free by helping you stay on track with your goals. Combining this the one-click rebalancing gives you everything you need to stay the course and achieve financial freedom.

Conclusion

Conclusively, M1 Finance and Robinhood are innovative brokers that have become some serious competition to the more traditional players like Schwab, Fidelity and TD Ameritrade. Already now, these new players have driven innovation and reduced fees significantly for retail investors.

However, when it comes to a direct comparison of M1 Finance and Robinhood, M1 Finance has the upper hand: more features that enable us to sustainably build up our wealth as opposed to speedy trades have me convinced.

Of course, as mentioned before it all depends on what you are after. For betting on prices in the short term Robinhood is an excellent tool. For investing in the long term M1 Finance is far superior.

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