Sorry Vanguard, but it’s time to introduce everyone to your more tech-savvy younger brother, M1 Finance. Anyone who listens to the podcast knows how much we love Vanguard’s low-cost index funds and how they can be the foundation of a successful retirement portfolio. In fact, Vanguard’s total stock market funds like VTSAX and VTI make up the bulk of our own retirement portfolios. Nothing has changed about why we recommend these funds.
What has had us on the lookout for a new option, is dealing with Vanguard’s archaic website and their limited offerings when it comes to automating our investing. Time is worth a lot to us, and in this instance, automating our portfolio-building based on our own predetermined criteria would be much easier, and smarter. If only there was a way that we could continue to freely invest in Vanguard funds, but with the added benefits that come with a robo advisor… this is where M1 Finance steps in.
M1 Finance is completely free to use for individual investors and combines the benefits of a robo advisor with the control that you’re used to with a traditional brokerage. It’s the best of both worlds and is a unique offering in the world of automated investing- sort of a hybrid of Betterment and Vanguard. With M1 Finance you can easily open a taxable brokerage account or set up a retirement account like a Roth IRA. From there, they’ll guide you through creating your own pie (which we’ll get to a little later on)- offering example stocks and funds along with visuals to help clarify your options. Especially if you’re new to investing or want to create a better diversified portfolio, M1 Finance is a game-changer. Here’s a quick video showing how to get started:
Unlike other popular robo advisors who take a .25% management fee, M1 Finance is free to use. We’ve discussed how fees can completely wreak havoc on your investments and Morningstar even reports that these unnecessary expenses can have the largest impact on your ability to retire on time. Small percentage points may not seem worth paying attention to now, but they can lead to hundreds of thousands of dollars over your investing lifetime. Since M1 Finance charges no fees to open an account and trade, this means more of your money is going into your investments and compounding at a greater rate for years to come!
It’s also quite nice that you can take M1 for a test drive without having to transfer any money into your account. No fees and no minimums is what convinced me to download the app to check it out a few months ago. Note: they do charge an inactivity fee as well as an IRA termination fee which you can find detailed on their website (so don’t actually open a retirement account until you’re ready to dig in and get started!)
Even though M1 Finance may be a new name to you, it’s super safe to use- they utilize many of the same tight security features that the big investment brokerages and commercial banks use. They are also a member of SIPC which is the same company that insures your investments over at Vanguard- if it’s good enough for Jack Bogle, it’s good enough for M1. Just remember that this is NOT insurance if you go all in on a single stock and then that company tanks!
Set It And Forget It
M1 Finance has created an innovative way to build and think about your portfolio by presenting a snapshot of your portfolio called a “pie.” You can easily slice and dice your own custom pie using individual stocks or even better, you can sample from their wide selection of prebuilt “expert pies” which can be searched by a number of criteria including target retirement date, overall risk, and even socially responsible investing. All of these expert pies are made up of a variety of slices which allows your portfolio, or “pie” to be widely diversified. And it’s no surprise to see that the majority of their expert pies consist of several different Vanguard ETFs!
Now this is the part where you set it and forget it- yes, automation! Once you’ve settled on a pie that fits your criteria, you no longer need to revisit your investments. M1 will automatically keep the proper amount of money invested in the different slices of your pie via automatic rebalancing. And you also don’t have to remember to invest the money that you transfer into your M1 Finance account because of their “cash balance control” feature which can immediately get your cash invested. Once you turn on auto-investing, any cash over the amount of $10 will automatically be invested in your pie ($10 is the default but you can also set that amount to a higher threshold like $100 or even $1,000 if you like to keep a chunk of cash idle on the sidelines for some reason).
Bonus, the M1 Finance app is intuitive and quick to use. For most of us, it is healthiest to completely automate this and not regularly check in on balances. However, part of me does wonder if more folks will be interested in saving and investing more, now that they have a way to easily monitor performance. Could a more pleasant user experience lead to more maxed out Roths? If so, I’m for it!
Who is M1 Finance For?
So all this to say, if you’re looking to start investing within a retirement account, M1 Finance might be a great option for you. It’s a free, easy to use, secure platform that allows you to automate your investing without requiring hours of research- just look to their expert pies as the foundation of your investments. If you are looking to step up the level of sophistication in your portfolio, M1 also allows a ridiculous amount of customization that you’re not going to find with any other robo advisor. Best of both worlds, for sure.
*At How to Money, we don’t write about anything that we don’t believe in or actually use ourselves. Some links on our site will result in us making a small commission. Thanks for supporting what we do!