Investing in the stock market can be confusing and, at some points, totally overwhelming. Today, there are many options for automated investing. These automated platforms are often called robo-advisors.
By leveraging algorithms and other cutting-edge technology, investors can use these platforms for a fraction of the cost of a traditional advisor.
This has revolutionized the financial services industry and has caused many old-school financial advisors to rethink their business models. When consumers can get investment management for a fraction of the price, this becomes an attractive offer that many are flocking to.
Two of the platforms that have effectively capitalized on this trend are M1 Finance and Betterment.
M1 Finance and Betterment are both investing platforms that are incredibly cheap (or free) to use and that do not require large account minimums. If you are looking for a great, low-cost investing platform with automation capabilities, then both of these platforms are a great choice for you to grow your wealth!
On the surface, both platforms are pretty similar. M1 Finance is a completely free robo-advisor/brokerage hybrid, while Betterment charges a small fee but offers more functionality. Betterment offers human advisor features and tax loss harvesting but comes with a fee. M1 Finance offers prebuilt portfolios and fractional shares for free.
In this review, we will be helping you understand which platform may be a better fit for you.
M1 Finance Review 2021: Best Free Investing App?
||Download M1 Finance|
Betterment Review 2021: Is This The Best Robo Advisor?
||Invest With Betterment|
|Minimum Investment||$0||$100 ($500 Retirement)|
|Fees||0.25% Digital, 0.40% Premium||None|
|Account Types||Individual, Joint, Traditional IRA, SEP IRA, Roth IRA, Business 401(k) Plans, Trust, Checking, Savings||Individual, Joint, Traditional IRA, SEP IRA, Roth IRA, Trust, Checking|
|High Yield Savings Account||Yes||No|
|Access To Financial Advisors||Yes||No|
|Tax Strategy||Tax Loss Harvesting||Tax Efficient Selling/Buying|
|Best For||Passive Investors, Hands Off||DIY Stock/ETF Investors|
M1 Finance is a fast-growing brokerage that is based out of Chicago, Illinois. The company offers an investing platform with two primary options.
The first is a custom portfolio of stocks and ETFs you build yourself.
The second is a hands-off approach, where you invest in one of the free expert portfolios.
These portfolios are constructed and allocated based on the opinions of financial experts as well as help from algorithms. While it is a "one size fits all" approach, there are dozens of portfolios to choose from.
A differentiator for M1 Finance is that you're not purchasing shares of individual stocks and ETFs. Instead, you're designing a "pie" with your target portfolio allocation and then depositing money into that pie. For example, you can't just buy a share of Apple on M1 FInance, but you could design an investment pie that contains a slice of Apple.
M1 Finance offers several features that make it a unique choice among other online brokers. Couple this with a highly competitive and limited fee-structure and M1 stands out from the crowd!
Automated investing is made easy on M1 Finance! So how does the process work exactly? First, you will be able to choose from the 1,000's of stocks and ETFs that are offered on its platform. From large technology companies to smaller biotech names, you have a multitude of options on M1 Finance.
Now that you have made a portfolio, you can set up an investment schedule where money is automatically deposited on a weekly or monthly basis. M1 Finance will allocate that money across your portfolio automatically, or you can do this yourself by turning "auto invest" off. You can also choose to reinvest your dividends back into the companies you are investing in to amplify the effects of compound interest. Compound interest is essential for enhancing portfolio returns and this is made easy through the dividend reinvestment feature on M1!
Last but not least, sit back and watch your portfolio grow. Because of the highly automated features part of this portfolio, the only thing left to do is to be patient.
When you add more money to your M1 Finance account, they will automatically rebalance your portfolio. This is accomplished by buying whatever assets you are underweight in. On the other hand, if you take money out, they will sell whatever you are overweight in first.
Fractional shares are another game-changing feature offered by M1 Finance. With most brokerages out there, you have to purchase whole shares of stock. This isn't a big deal with shares like Ford that trade for $10 a share. It is a big deal when looking at stocks like Amazon that trade for close to $3,000 a share.
M1 gives you the ability to purchase as little as 1/10,000th of a share of any stock that trades on the platform.
This allows you to build a well-diversified portfolio with a small account.
Investors have the option to create their portfolios or use the expert-built portfolios on the M1 platform.
M1 Finance offers a variety of prebuilt portfolios called expert pies. Securities professionals create these pies which are then managed by M1 Finance. Expert pies may be a suitable choice for beginners who do not want to build an investment portfolio from scratch.
These expert pies can make up your entire investment portfolio or just a portion of it. They are 100% free to invest in!
With 30+ different expert pies to choose from, most investors will find a pie that aligns with their goals and risk tolerance.
With M1 Borrow, you are able to borrow up to 35% of the value of your portfolio. You can use this borrowed money to invest on margin or for other expenses like unexpected medical bills. There is no additional paperwork, credit checks, loan officers, or denials with this borrowing.
So, it is extremely convenient. However, you will have to pay it back on a schedule. Since this is a secured loan, interest rates are much lower than unsecured loans.
Investors in need of a low-interest loan may find M1 Borrow extremely convenient and effective for accessing capital quickly.
M1 Finance offers FDIC-insured checking accounts that can be directly integrated into the M1 app. You can use these checking accounts to make direct deposits, to pay bills, and to spend with a debit card. When you spend with your M1 debit card, you can earn rewards.
FDIC Insurance is very important because it secures up to $250,000 of your cash in a M1 Checking Account. This can help prevent you against a bank run and means that, as long as your account is below $250,000, it is secure.
Your investments will be covered by SIPC insurance, as opposed to FDIC insurance, up to $500,000. This does not protect you from bad investment decisions, only if the financial institution were to go under.
Dividend investors are loving M1 Finance thanks to the portfolio level DRIP they offer. When you earn a dividend, that money is added to your cash balance held within your portfolio.
The M1 Finance DRIP is different from most other DRIPs out there because, with M1 Finance, dividends are re-invested across your entire portfolio, not just back into the stock that paid them out.
In addition to setting up recurring deposits into your M1 Finance portfolio, you can also enable Smart Transfers to take things a step further. Smart Transfers allow you to put every single dollar to use by setting up threshold-based rules for your account.
For example, if you knew you wanted to keep $1,500 in your checking account at all times and invest anything above and beyond that amount, you could do that. By setting up a Smart Transfer, M1 would move money from your checking account to your investment portfolio whenever your checking account reached that balance.
This can be a great feature for investors who have a plan in place and want to spend as little time as possible on their investments. M1 has also stated that they plan to add more functionality to their Smart Transfers over the coming weeks so make sure to stay tuned for more updates!
Currently, this feature is only available to M1 Plus members. It's possible that they'll end up rolling it out to more users over time. But for now, you'll need to fork over the $125 per year for M1 Plus in order to utilize Smart Transfers.
While M1 Finance prides itself on offering no fees for trades on stocks and ETFs through its platform, it does still have several miscellaneous fees that you should be aware of before opening an account.
Here is a list of some of the paper fees that you will encounter when requesting documents to be delivered directly through M1 Finance.
Overnight Mail (Domestic) will cost you $125, overnight mail (International/Canada) will cost you $100, a paper confirm fee will run you $2, a paper statement fee/ paper tax statement fee (per 50 pages) will cost you $5, and lastly a return mail (per piece) will cost you $2.
That is a lot of fees for paper copies! Remember, however, that all of these documents can also be accessed digitally through M1 Finance. But, if you are interested in paper copies and also willing to pay these fees, M1 has that option as well.
Account Maintenance Fee Inactivity fee: accounts with up to $20 & no activity for 90+ days. $20 Escheatment Processing (Per account) $75 TOD Account Transfer Fee (Per transfer) $200
For incoming account transfers, you will not be charged a fee. This is different for outgoing transfers, however, which will cost $100 for money out. You should keep this fee in mind if you are looking to move money in and out of your account, but are not looking to pay a large fee for doing so.
Last but not least, let's take a look at some of the regulatory fees associated with M1 Finance. Regulatory fees are enforced by the SEC and work like this:
If you decide to sell a stock or ETF, you will pay a very small fee to the SEC and also a Trading Activity Fee to M1 Finance.
The fee is extremely small, however. For example, if you want to buy 10 shares of a stock that is priced at 150 per share, you will pay 3 cents in SEC fees and a 1 cent Trading Activity.
While these fees should not kill your balance, they are something to be aware of if you are looking to be in and out of multiple companies per day when trading.
Betterment is another investing platform that is very similar to M1. However, there are several key differences. The two biggest differences are the fee structure and portfolios.
Betterment builds you a portfolio from scratch based on your specific needs and goals. That tailored service comes at a small fee of 0.25% per year.
If you want to take it a step further, they offer the Premium plan for those with $100,000 or more invested. This gives you unlimited access to financial advisors for just 0.40% per year.
Both Betterment and M1 Finance are designed to be extremely easy to use and to be very low cost. They are great platforms for beginners and experienced investors alike. Betterment offers several features that go above and beyond M1, so it may be worth considering this platform even though they do charge a small fee.
Betterment currently has $28 billion in assets under management. This makes the company significantly larger than M1 Finance, which only has $3 billion in assets under management. However, M1 is growing very quickly, largely due to its free pricing structure. So, it could grow a lot larger shortly.
Betterment's features are really what make the online broker shine. Let's take a look at some of the most popular and notable ones now!
Unlike M1, Betterment offers personalized guidance that is based on your preferences, risk tolerance, and needs.
This is accomplished via the algorithm for the Digital accounts or Premium users have access to a team of financial advisors.
For brand new investors, it can be extremely useful to have that personal guidance to help you build confidence that you are on the right track. However, more experienced investors may prefer the flexibility of choosing their investments on their own.
Betterment offers several features that help you cut down on your tax bill at the end of the year.
One of these features is the tax coordinated portfolio. Through this feature, Betterment looks at all of the assets held within your different accounts and organizes them in the most tax-efficient way possible.
For example, an investment that would incur maximum capital gains tax might be placed in a tax-sheltered retirement account.
By following this strategy, investors can save thousands of dollars in taxes over the long run, more than paying for the cost of the service.
With low-interest rates being a characteristic of the economy over the last 10 years, it can be difficult to earn a yield on your cash. Betterment offers a solution to this issue by offering a high yield savings account called Betterment Cash Reserve. This is a great option for your emergency fund.
Having a way to continue to earn on your uninvested cash is a must, and so Betterment Cash Reserve will be a great feature for many investors.
Recently, Betterment partnered with Dosh to offer cash back rewards to Betterment users. When using your Betterment debit card to shop at participating merchants, you'll be earning cash back.
Examples of partner merchants include:
Cash back will be deposited directly into your Betterment checking account in as little as 24 hours after you make a purchase with a participating store. You won't have to activate any offers and all cash back earning is 100% automatic. This feature makes the Betterment checking account and debit card much more attractive.
Betterment now offers advice packages for the specific one-on-one advice you are looking for. Advisors on the Betterment platform will then guide you through your financial goals and your current financial situation.
All you need to do is select your package, schedule your call, and talk to an expert about your specific situation. Betterment offers 5 different advice packages ranging from $199 to $299. This ranges from a getting started package to a marriage planning package and even college planning!
Most investors would do well to check in with a financial advisor on a periodic basis, and so having the ability to do that on Betterment without signing up for a long-term commitment is a big plus.
You can learn more about Betterment Advice Packages here!
Betterment charges 0.25% to 0.40% per year. The minimum for Digital is $0. The minimum for Premium is $100,000.
This is more expensive than M1, which charges nothing. However, it is significantly less than the 1% that most money managers charge. So, if you open an account with Betterment, then you will still be accessing high-quality investment options for a very reasonable and cheap fee.
Betterment also offers several features that go above and beyond what M1 is offering.
Betterment does not have any account minimums to get started. So, you do not have to start with a large amount of capital when you open an account with Betterment. Many younger investors find this ideal as it makes the platform much more accessible to them.
M1 Finance and Betterment are both inexpensive, extremely easy to use, and convenient. They are both exactly the kind of investing platform that many millennials are seeking out. You really can’t go wrong with either of these platforms, but the subtle differences set them apart.
Neither is going to cost you a fortune in fees, each has a solid reputation for its investments and each has many outstanding features which add value to the platform.
In terms of which is better, M1 Finance or Betterment, it comes down to what your priorities are. If your priority is to find the absolute cheapest robo-advisor/brokerage that you can invest your money with, then M1 Finance is better. This is because there are zero fees to use M1.
However, if you are looking to have a more personalized experience, then Betterment is the better option.
With Betterment, you can have a human or algorithm help you (based on the plan you choose) with financial planning and they can help to sculpt your portfolio according to your needs and preferences.They designed M1 Finance to be as automated and hands-free as possible. With M1 Finance, the goal is essentially just to be able to invest in your own custom portfolio or the expert pies that are "one size fits all."
Betterment offers a much more personalized experience, but at the cost of having less ability to make tweaks to your plan once it has been set up.
However, regardless of which platform you decide to go with, you should be able to grow your net worth and avoid paying the exorbitant fees that many other investing platforms and money managers charge. So, it is really a win/win.
Robo-advisors are the future, and so both M1 FInance and Betterement will provide that increased level of service at a price point that makes sense.