Friday, July 13, 2018

Review of M1 Finance--You Can Get $10 of Free Stock

As an investor, minimizing fees is one of my goals.  Most research has shown that paying more investing fees does not result in better outcomes for the investor.

The internet and computerized trading have made it possible to buy and sell securities for no or low fees.  I've written previously about Robinhood, Motif, and Stockpile.  None of those companies would have been economically viable twenty years ago.  Recently, another competitor to them has emerged, M1 Finance.

What is M1 Finance?

M1 Finance is an on-line stockbroker whose specialty is "Pies"--portfolios of multiple stocks and/or ETFs, which can be purchased for no commission or trading fee.  When you open your account, you decide what percent of your money you want allocated to what security.  You can decide whether you want one "pie" (proportionately divided portfolio)  or several.

For example, you could decide that you want your money invested 25% in Amazon, 25% in CVS, 10% in AT%T, and 40% in Vanguard's Total Bond Market ETF.  You would design a "pie" with those percentages and then send M1 some money--$100 minimum to start--and it will be invested that way.  M1 allows investment in fractional shares, and only invests at the first morning opening price.

Keeping Your Account In Balance

Obviously, your pie is not going to stay perfectly balanced for long.  One of those slices is going to outperform the others, expanding its slice and decreasing theirs.  However, when you deposit more money, M1 uses it to put your pie back in balance.  If stocks have fallen, and the bond ETF is now 50% of your pie, your new money will go into stocks until such time as your ratios are back on track.  If you have basically good securities in your pie, this technique helps you buy low.

Of course the other side of that equation is to "sell high".  If you want to withdraw an amount of money (as opposed to wanting to liquidate a particular position), M1 Finance tries to do so in a way that keeps your pie balanced and is tax-advantageous.  However, it does not offer automatic tax loss harvesting.

Finally, M1 has a button you can push to re-balance your pie.  

Opening an Account

Opening an account with M1 Finance is easy.  Go to their website, create an account, link your bank account and then verify the micro-deposits--nothing you haven't done with any other online financial account.  Make your first deposit, which can be as little as $100.

Adopt a Pie

M1 Finance offers "Expert Pies" designed by their firm, or you can create your own pie.  If you have not already done so, when you log on you'll see a button to create a pie, and once you push it, you'll be taken to a screen called "Add Slices".  From there, you can choose stocks, funds, expert pies,my pies or watchlist.  

If you select an expert pie, you are taken to a screen that briefly describes the types of expert pies.  Two are "Income Earners" and "Hedge Fund Followers".  If you click on one of those it takes you to a list of pies.  The list shows the number of holdings, the dividend yield, a performance graph, performance in the last 1, 3 and 5 years and a risk rating.  Selecting one of the pies takes you to a screen that shows the holdings, a description of the pie and a description of the methodology used to select the holdings.  

Some of the pies use stocks, others use ETFs and still others a combination. 

Target Date pies come in five year increments in conservative, moderate and aggressive flavors.  As the target date nears, the portfolio is automatically moved to a more conservative posture.  

Bake Your Own Pie

I've said it before and I'll say it again, even though I'm not an expert and nothing you read here should be construed as financial advice, the majority of your retirement money should be in a diversified portfolio of index mutual funds and/or ETFs.  However, if you want to put a few dollars into individual stocks of your own picking, M1 allows you to do that as well.

If you select "Stocks" in the "Add Slices" screen, you are taken to a stock screener where you can choose to invest in any of 4,258  companies. To help you narrow your search, there are some basic screens such as market capitalization, P/E Ratio, Dividend Yield and Sector.  

A search for Consumer Defensive companies that pay a 3% dividend or more, got me 28 choices.  Since more is better, I sorted by dividend yield, and then looked at the list.  The highest yielding company was Keurig Dr. Pepper but year to date, it was down 72%.  Continuing down the list, United Guardian was 28.2% ytd, and still pays a 5.07% dividend, so I clicked on it, which took me to a page with basic information about the company.  I learned that though it was up this year, long term, things don't look so good.  

If I want to search for a particular stock, I can do that too.  A nice thing about M1 finance is that you do not have to buy an entire share of stock; if you want to invest $100 in Alphabet (Google) you can buy 0.17 shares.  You do not have to wait  until  you have $1188.82.

In any case, I can select up to 100 different securities per pie, and you can create pies until you have amassed 500 different securities. You can decide the weight you want each to have in your pie.

Types of Accounts

Unlike some other no-fee brokers, M1 Finance offers a variety of types of accounts.  You can open an IRA, a Roth IRA, a SEP IRA or a Trust Account. While you cannot open a Custodial Account now, M1 plans to make them available soon.  

M1 Finance is making a bid to be your main broker. While they do not currently offer options trading, and while they only trade at market open every day, they offer a wide variety of stocks and ETFs.  


M1 does not charge a sales commission or an account fee, even with IRAs.  They do charge interest on margin accounts (accounts that let you borrow money to buy stock)  There are a few services for which they charge fees and you can see them here. 

Get $10.00 in Fee Stock

M1 Finance is giving $10.00 worth of free stock to anyone who uses this link (or the other links in this post) to open a first account with them--and they'll give me $10 too if you do.  It takes about two weeks for that money to hit your account, but can you tell me another safe investment that will pay you 10% in two weeks (if you invest the minimum of $100)?  

Disease Called Debt

No comments:

Post a Comment