M1 Finance and Robinhood are both investing apps that you can use to grow your wealth.
They’re similar in that neither platform charges commissions on trades, and they both aim to make investing easier and more accessible.
However, they have many differences as well that are worth looking into before you decide which one to use.
Here’s everything you need to know about M1 Finance and Robinhood, two apps that are changing the way people invest.
Robinhood was one of the first apps to offer commission-free trading, and it’s developed a huge following over the years.
Robinhood aims to make investment as easy and affordable as possible.
In fact, it’s considered by many to be the most affordable investment platform out there. The app is quite simple, so it’s great for beginner investors. However, it doesn’t have some of the advanced features that other investment apps have.
It’s better for an active trading approach than a buy-and-sell approach. While it doesn’t have all the advanced features that serious day traders might expect, the platform still lends itself to making frequent trades and staying on top of the market.
M1 Finance Overview
M1 Finance is a robo-advisor app that functions like a brokerage.
It has many advanced features, but is simple enough that beginner investors can use it as well. M1 Finance is generally better for a buy-and-hold investment strategy to help you save for retirement or other big financial goals.
M1 Finance gives you the option to completely customize your portfolio, or you can choose to invest in one of their premade portfolios, or ‘Pies’.
This is a good option for people who have a lower risk tolerance, or just want someone else to do the heavy lifting for them.
There are no commission fees on Robinhood at all, as compared to many other finance platforms, which charge commission fees of 5 to 10 percent on top of the cost of the trade. Robinhood also does not have any account minimums.
This makes it much easier for low- to middle-class consumers to get started with investing.
If you want to trade on margin – essentially trading on borrowed money – you can join Robinhood Gold.
Robinhood Gold does charge monthly fees and requires certain account minimums, depending on how much you plan on spending in margin trades. However, these fees are still very reasonable.
A $6 fee and an account minimum of $2,000 can get you $1,000 extra in buying power. It’s also important to keep in mind that you may encounter bank fees when you transfer money from Robinhood. You may also encounter SEC fees, although these are generally very low.
M1 Finance Fees
M1 Finance also doesn’t charge commission fees on their investments. This makes the app very attractive when compared to other robo-investors.
However, M1 Finance does require an account minimum of $100 to start investing.
From that point forward, any money you deposit into your account is automatically invested following the investment pie chart that you specify when setting up your account.
As with any investment platform, you will encounter small SEC trading fees, and there is also the potential for bank fees.
Robinhood has a variety of features to help you make informed investing decisions.
Although the platform is very simple, the team has made improvements to it over the years to provide more detailed investment information.
Here are some of the features that Robinhood offers:
- Trades stocks, ETF, options, and cryptocurrency. This gives you a good selection of investment options to get started with. While they are still missing some investment options, you’ll have the basics and won’t be too limited by this app.
- Analyst ratings and other research. Robinhood doesn’t go too in depth with stock research, but there’s more than enough to get you started when picking your investments. You can browse lists and categories to find investments you’re interested in and then add them to watch lists. They also offer analyst ratings from Morningstar as well as earnings reports. The research on Robinhood will get you started when choosing investments, although you may want to go online to do further research on your own as well.
- Robinhood Gold. This option allows you to trade on margin for a small fee, provided you have a certain minimum account balance. For certain investment strategies, this can be incredibly helpful. Robinhood also recently updated their Gold subscription features, so you get more for your money. With a Gold subscription, you get access to advanced financial news and data, as well as much larger instant deposits. These features are designed to make the app much more user friendly for serious day traders.
- Newsfeed. Robinhood has a newsfeed where you can keep up with the latest happenings in the investment world. While it’s not particularly comprehensive, it serves as a good jumping off point for your research.
- Instant money transfers. Robinhood stands out from brokerages and other investment tools because you can transfer money from your bank account to your Robinhood account very quickly. This makes it easy to start investing quickly, instead of having to wait days for your bank transfer to go through.
M1 Finance Features
M1 Finance offers a unique set of features that make long-term investing very easy.
Here are the features M1 Finance offers.
- Investment ‘Pies’ and portfolios. This feature is excellent for passive investors who want an easy, pre-made portfolio. You’ll put together an investment pie chart based on what types of things you want to spend your money on. M1 Finance will ask you questions about your investment preferences, and you’ll also be able to browse pre-created pie charts to get an idea of what you’d like to invest in. The program will then help you generate a pie chart detailing your investments. As the stock market fluctuates, your pie will automatically adjust to fit your investment goals.
- Invest in stocks and bonds. Unlike other robo-investors or brokerages, you have a little more control with M1 Finance of the things you can invest in. You can search for stocks and bonds on their platform to add to your portfolio.
- Retirement account integration. M1 Finance lets you link your portfolio to a variety of different account options, including not only brokerage accounts, but IRAs as well. This allows you to get the tax benefits of using an IRA with your M1 investments.
- Fractional shares. M1 Finance allows you to invest in part of a share of a stock – you don’t have to buy a whole share. This can really open up your investment possibilities by allowing you to invest in higher value stocks, even with relatively low capital.
- M1 Borrow. This allows you to borrow from your account at any time and pay it back with low interest. To do this, you must have a taxable brokerage account with at least $25,000 saved. It’s a good alternative to using a credit card or taking out a high interest loan when you need to increase your cash flow.
- M1 Spend. This is a checking account that comes with a debit card linked directly to your M1 Finance account, allowing you to easily access the money that you have made investing. It’s free for all members, or you can pay a yearly membership fee of $125 for M1 Plus, which will get you 1 percent cash back on your purchases.
There are many areas where Robinhood performs well and really stands out from its competitors.
The advantages of using Robinhood include:
- Absolutely no fees unless you are trading on margin. Robinhood is so easy and affordable to use, which makes it much more accessible than other trading apps and websites. Many people think that they can’t afford to invest, but Robinhood gets rid of those limitations. Even investing a small amount can lead to meaningful savings later on, so it’s worth it.
- User-friendly interface. The Robinhood app has a very clean design that’s easy to navigate. It’s ideal for those who want to place trades quickly, without sorting through an abundance of visual features or information. Overall, the design is very pleasant and enjoyable to use. It’s easy to sort through analyst ratings and browse stocks by category to find what you’re looking for.
- Great for active trading. This streamlined app is perfect for those who like to trade frequently, but don’t want to waste too much time doing so. It’s easy to place trades quickly, and you do have the option to trade on margin for a small fee if it suits your strategy.
- Cryptocurrency options. Robinhood offers cryptocurrency options, which you don’t often see in beginner investment tools or mobile investing apps. Cryptocurrency has become a very buzzy investment option over the past few years, and it opens up high risk, high reward possibilities that other investments don’t.
M1 Finance Pros
There are many advantages to using M1 Finance, particularly for those interested in retirement savings.
Here are the advantages of M1 Finance.
- Allows you to connect to your retirement accounts. If you’re trying to plan for the future, M1 Finance allows you to use an IRA, which gets you tax benefits you wouldn’t get with a traditional brokerage account, and is better suited to long-term saving.
- No fees and low barrier to entry. Since they have no commission fees, M1 Finance is a lot more affordable than other robo-advisors. It means that more of your money goes towards your investments and growing your wealth. There is an account minimum of $100, but compared to other investment platforms, this is relatively low.
- Very easy to set up and understand. For the passive investor, the idea of building a portfolio can be daunting. M1 Finance’s pie model makes it very easy. Since they already have many pre-built pies, you can choose the one that makes the most sense for you and tweak it to your preferences.
- Fractional shares allow you to invest in a broader range of stocks and bonds. There are very few other platforms that offer fractional shares as an investment option. This simplifies the investing process, because you don’t have to worry about having enough money to invest in whole shares – you can just invest what you have.
- Automatic rebalancing and investing. This platform also has automatic rebalancing and investing to keep your portfolio balanced and continue growing your wealth with minimal effort. It ensures that your money never sits idle – it’s always growing your savings. M1 Finance will automatically reinvest your dividends, and it can also automatically rebalance your portfolio. If one of your stocks has grown in value while another has stayed relatively low, it will rebalance to your original preferences. When the low stock eventually goes up, you’ll make more money.
- Tax loss harvesting. M1 Finance offers some basic tax loss harvesting features. This essentially takes tax laws into account when managing your finances, so you’ll lose less money in taxes down the road. While M1 Finance’s tax loss harvesting isn’t as advanced as some other services, it’s an amazing service to include on a free platform.
- M1 Spend and Borrow give you convenient comprehensive financial services. This gives you more financial flexibility, and you don’t have to worry about bank transfers limiting your liquidity.
- Customer service. M1 Finance offers multiple customer service options. You can contact them by phone, email, or live chat to get guidance with your investments. They also offer consultations with their expert team for those who want more help putting together a portfolio.
There are a few disadvantages to using Robinhood.
You’ll need to weigh the pros and cons to decide what makes more sense for your needs. Here are some of the disadvantages of using Robinhood.
- Robinhood does not offer retirement accounts, so it isn’t the best for those who are interested in a buy and hold investment strategy. They also don’t offer mutual funds and bonds.
- Robinhood does not yet have a feature to reinvest your dividends – they are paid to you in cash and you’ll need to reinvest them manually. This is one area where M1 Finance has the advantage, as their app is much more automated than Robinhood.
- Robinhood’s research offerings may not be enough for the serious day trader. For someone who needs very in-depth analysis, charts, and reports that are accurate to the second, this may not be the best option for you.
- Alternatively, Robinhood also does not offer any pre-made portfolios or investment guidance. While this does provide more flexibility with your investments, this also can be quite daunting for the new investor.
- Robinhood does not offer customer service over the phone – it is only available via email. This can be frustrating for those who are used to phone based customer service solutions. However, the company does have an online help center where they summarize the most common customer service questions.
M1 Finance Cons
There are some disadvantages to using M1 Finance. Here’s what you should be aware of before you start investing.
- M1 Finance is not suited to active investing. If you are focused on short term financial growth, then this isn’t the app for you. It doesn’t have the features to support day trading and there isn’t any option for short selling. While you can access stock performance information on M1 Finance, it doesn’t have the information you would need for day trading.
- M1 Finance doesn’t connect to 401k or employer-sponsored retirement accounts, which can be frustrating for those who want to invest their money this way.
- M1 Finance also doesn’t have as many investment options as other platforms. While they do have a good selection of stocks and bonds, right now there aren’t any other investment options available on the platform, like mutual funds or crypto.
- While the account minimums aren’t particularly high on M1 Finance, they could still be a barrier to entry for some people, especially young investors.
Who is Robinhood for?
Robinhood is best for beginner to intermediate investors who are more interested in active trading than retirement accounts. It streamlines the process of active investing and makes it very easy to do over the phone.
It also is great for those who don’t have much capital, but are interested in starting with investing all the same.
It’s become particularly popular with young people, who may not have a lot of capital, but are interested in active trading strategies and are willing to take these risks to grow their wealth.
Who is M1 Finance for?
M1 Finance is for the long-term investor who is planning for retirement, but wants a user-friendly platform to do it with.
It combines many of the appealing aspects of an investment app with the features of a robo-advisor, which streamlines the process of setting up a retirement investment account.
If you want someone to manage your investments for you, you can opt for one of the many pre-made portfolios, but if you would prefer more control over where your money is going, you can create and manage your own portfolio.
Robinhood vs. M1 Finance: Quick Comparisons
Here’s how these two platforms stack up when it comes to certain key features.
- Fees: Neither platform charges trading fees. Both have very similar standard bank fees and SEC fees.
- Minimum balance: Robinhood has no minimum balance. M1 Finance has no minimum balance to open an account, but does require a balance of at least $100 to start trading.
- Investments offered: Robinhood offers stocks, ETFs, crypto, and options. M1 offers stocks and ETFs, as well as a variety of pre-built portfolios. M1 is the only one that offers retirement accounts, while Robinhood is better for active trading.
- Margin trading: Both services offer margin trading if you meet a minimum account balance of $2,000. With Robinhood, you have to pay a small Robinhood Gold fee to do this, while with M1 Finance, your account automatically enables margin trading once you reach $2,000 in your account. However, Robinhood is slightly more suited to margin trading since it is better set up for active day trading.
- Dividend reinvestment: M1 Finance will automatically reinvest your dividends, while Robinhood does not. M1 Finance also offers tax minimization tools, whereas Robinhood does not. However, this tends to be less relevant with Robinhood, since it is focused more on short-term trades.
- Portfolios: M1 Finance offers pre-built portfolios, while Robinhood gives you more flexibility to create your portfolio on your own.
- Customer service: Robinhood only offers customer service via email. M1 Finance offers slightly more comprehensive customer service. They have phone, email, and online chat customer service options.
- Design: Both apps are sleek and very easy to use. Both companies offer desktop and mobile access, so you can trade from any device.
The Bottom Line
Both M1 Finance and Robinhood are great ways to get started with investing. One isn’t better than the other – it just depends what your investment goals are. Both are targeted towards beginner to intermediate investors, but they have very different investment mechanisms.
They focus on different investment strategies, with M1 Finance promoting a buy-and-hold plan to save for retirement, while Robinhood encourages more active trading.
There are also some areas where both platforms are lacking.
For example, although Robinhood does support active trading, many serious investors will find it limiting. Both platforms are also somewhat limited in investment options – for example, neither platform offers mutual funds right now.
However, where they both shine is the lack of fees.
Either way, commission-free investment is a great way to grow your wealth and start building up your savings. In the past, it was difficult to get started with investing unless you already had a lot of capital to spend.
For low- to middle-income consumers, it used to be difficult to build up a retirement savings. Now, you have multiple options when it comes to choosing a low-cost investment service.