M1 Finance is one in a wave of commission-free investment apps that have hit the market in recent years. They offer flexibility and control over your long-term investments, allowing you to build your portfolio with a pie chart investment strategy. Since M1 Finance is commission-free and has a very low account minimum at just $100, they make it easier for people of differing financial backgrounds to invest. However, you might be wondering how the platform actually makes money. Here is some key information on how M1 Finance makes money, as well as some further insight into the platform and its investment options.
M1 Finance’s Income Sources
There are two key ways that M1 Finance makes money. The first is something that’s common industry practice, and is a concept that can be difficult to understand for those who don’t work in finance. Essentially, M1 Finance loans its securities to other investors so they can complete trades, and then they charge interest on the securities. This allows them to make money without charging their customers any fees.
Another way that M1 Finance makes money is through their M1 Borrow program.
This program allows M1 Finance users to borrow money against their portfolio and pay it back at a low interest rate. These loans are incredibly attractive – they have some of the lowest interest rates on the market, and once you set up your M1 Finance profile, you can use the lending service as needed. You don’t need to go through additional credit checks or do any paperwork.
You can borrow up to 35% of your portfolio value, and you can use the loan for virtually anything.
Many people use these loans to refinance their debts, since they have such low interest rates. You can also use these loans to buy a home or a car, or pay for a wedding or an important trip.
The key is that you can only take 35% of your portfolio value, so your portfolio will need to be valued high enough for you to take out the money you need. Through this service, M1 Finance is able to make money while also providing a great loan option to their customers.
Is M1 Finance really free?
When you read about M1 Finance and other similar services, you might find yourself thinking that nothing in life is free. However, M1 Finance really does offer commission-free trading. By finding other ways to make money, they are able to draw in more investors and offer a better service to customers.
There are some external fees you may have to pay when using M1 Finance, but these are standard for all investment companies. For example, you will have to pay very small SEC fees on each trade, and you may also be subject to bank transfer fees, depending on your financial institution.
It’s also important to note that the account minimum is $100 for individual accounts and $500 for retirement accounts like IRAs.
However, when compared to most other robo-advisors, which charge huge management fees and commissions, you can save a lot of money on your investments with M1 Finance.
How does M1 Finance work?
One of the things that many users like about M1 Finance is that it is very intuitive and easy to use. Once you sign up and get approved for an account, you will start picking your investment pies.
These pie charts allow you to visualize how your investments are allocated in percentages, and you can adjust them whenever you want to suit your needs.
There are over 60 pre-built pies by expert investors that you can choose from if you want some guidance. You can also search for stocks on your own and create your own pie. You can even combine these two strategies by starting with a pre-built pie and adjusting it to suit your personal needs. Then, you will need to link your bank account to the app to fund it.
You can even set up automatic deposits to your M1 Finance account to ensure that you are continually contributing to your investment account.
Who is M1 Finance for?
M1 Finance has a very specific niche as an investment service. It is designed specifically for long-term investing and is particularly great for retirement savings. Ideally, you’ll have a basic knowledge of investing before you start, but you don’t need to be an expert by any means.
M1 Finance is excellent for those who want to be in control of their portfolio and have some flexibility with their investments, but who also want the process to be easy and simple.
M1 Finance is also great if you want to save money while you are investing, because they don’t charge any fees and have low account minimums.
They even allow you to buy fractional shares, which makes it easier to invest in high value companies without a lot of capital.
Who shouldn’t use M1 Finance?
M1 Finance is not designed for day trading, so if you want to use short-term investment strategies, you would be better off using a different app. They don’t have many research tools available that short-term investors would need.
You also can’t place real-time trades – trades on M1 Finance are made in batches. Alternatively, M1 Finance isn’t the best option out there for total beginners.
They don’t offer many investment education tools, so you may find yourself overwhelmed if you have never invested before. For total beginners to be successful on M1 Finance, you would need to do your research outside of the app.
What are the advantages of M1 Finance?
There are many advantages to using M1 Finance for your investments. The first and biggest advantage is simply that they don’t charge fees, which means that more of your money goes towards saving for retirement.
There aren’t many financial barriers to getting started with M1 Finance, so it’s easy for people of any financial background to grow their wealth. M1 Finance also allows you to invest in fractional shares, so you can invest in the stocks you want regardless of how much money you have to contribute.
Another reason why people love M1 Finance is because it has a very aesthetically pleasing design. The pie charts are very appealing, and the entire service feels modern and sophisticated.
Both the app and the desktop site are very intuitive and user friendly. You aren’t bombarded with information that could be confusing or overwhelming – instead, when you log on, you just see your pie chart and a graph of its performance. You can then navigate to different tasks from that homepage.
M1 Finance offers several different automated features that can help you grow your wealth even further. For example, they will automatically reinvest any dividends that you earn, ensuring that your wealth is always growing. They also use tax efficient investing strategies to lower the eventual tax burden on your investments.
You have the option to automatically rebalance your portfolio as well, since your percentages will naturally change over time as some investments grow.
Finally, you can set up automatic deposits, so you don’t have to worry about remembering to contribute to your account.
M1 Finance offers excellent customer service support. While they unfortunately do not offer access to certified financial advisors, you can reach their customer support staff via email and phone. M1 Finance’s customer service has been well-reviewed, offering prompt and helpful responses to customer issues.
The M1 Borrow platform is also a huge advantage for customers. Getting a loan from a traditional bank can be difficult and stressful, and M1 makes the process so much easier by allowing you to borrow against your account at affordable low interest rates. If you need to increase your cash flow but don’t want to withdraw money from your savings account, M1 Borrow makes it easy.
M1 is also currently working on their next project, a banking account called M1 Spend. This will essentially allow you to open an FDIC insured checking account within the app, so you can keep all of your money in one place. The account will come with a debit card and make it easier to transfer money back and forth into your investments.
What are the disadvantages of M1 Finance?
There are some disadvantages to using M1 Finance that are important to be aware of. One of the biggest disadvantages is that they currently only offer stocks and EDFs as investment options. If you are interested in other investments, like mutual funds or bonds, you won’t be able to add them to your portfolio with this app.
Another big disadvantage of M1 Finance is that they do not offer much in the way of investor education and investment research. Even if you are already an experienced investor, this can still be a downside, because you will have to go outside of the app to research any new stocks you might be interested in purchasing. The lack of investor education resources can also make the platform a little overwhelming for new investors. This platform also does not offer short term investing – trades are made in batches once per day.
It is also important to note that while M1 Finance does offer tax efficient investing, they do not offer tax loss harvesting. Therefore, you may still lose some money to taxes that you could have avoided with another service. The lack of access to a human financial advisor also may be a downside for some, particularly those who want more guidance with their account. M1 Finance’s main focus is providing flexibility and control over your investments.
Who are M1 Finance’s competitors?
M1 Finance competes with several other investment apps and robo-advisors. Here are the biggest competitors that M1 Finance faces.
- This is an investment app that is also designed for intermediate investors, offering stocks and ETFs. However, this app takes a completely different approach in that it is designed for short term trading. They are known for the extensive amount of data and tools available for their customers. If you like the flexibility of M1 Finance, but want to use a short-term investment strategy, this might be a better option for you.
- Robinhood is quite similar to Webull in that it is good for short-term investing and offers helpful research tools. However, Robinhood is generally considered a better option for total beginners, as it is a simpler option.
- If you like the robo-advisor aspect of M1 Finance, but would prefer total guidance instead of investment flexibility, this may be the tool for you. You can work with real certified financial advisors, and most of the investing is automated for you. You can just contribute money to your account without having to stress about building your portfolio.
- This is another robo-advisor that has become popular over the last few years. They differ from M1 Finance in that they are more expensive, charging fees for their management and trades. However, you do get more guidance when it comes to building your portfolio.
The Bottom Line
M1 Finance is a stable platform that you can use to save for retirement or other future goals. They have created an innovative business model that gets rid of fees and uses other ways to make money. Because of this, they are a very accessible investment platform that helps you get more out of your investments.
Although it isn’t great for day trading, M1 Finance is excellent for using a long-term investment strategy.
By giving you more flexibility with your investments than the average robo-advisor, you can implement a strategy that works best for you, and feel totally in control of where your money is going.