M1 Finance and Charles Schwab are two brokerages that take a different approach to building an investment platform. In this article, we are comparing the two popular investing platforms, M1 Finance vs Charles Schwab.
M1 Finance offers free investing if you meet the minimum balance of $100, Charles Schwab offers accounts with no minimum balance.
Charles Schwab also offers a more advanced user interface while M1 Finance has a beginner-friendly platform. Schwab offers managed accounts and financial planning for a fee, while M1 Finance offers a free robo-advisor feature.
|Feature||M1 Finance||Charles Schwab|
|Minimum Balance||$100 ($500 Retirement Accounts)||$0|
|Assets||Stocks, ETFs||Stocks, ETFs, Mutual Funds, Options, Futures, Bonds|
|Mutual Funds||No||Over 3,500 No Transaction Fee Funds|
|Robo-Advisor||No||Yes ($5,000 Minimum)|
|Best For||Long-Term Passive Investors||High Net Worth Investors|
M1 Finance is a beginner-friendly investment platform that allows individuals to start investing in the stock market without extensive experience needed.
The focus of the platform is on building investment "pies" where you construct a portfolio of different stocks and ETFs and tell M1 Finance what percentage of your portfolio should be allocated to each. Then you deposit some cash and that's pretty much it. The platform will handle the rest from there.
Every time you make a deposit, it will be automatically allocated to the pie based on how you set it up. M1 Finance also provides automatic rebalancing of your portfolio to make sure you stay as close to your target allocations as possible. This feature ensures that you are automatically buying low and selling high.
If you're not interested in building your own investment pie, M1 Finance also offers a collection of investment pies for free that you can select and use yourself.
A key feature of M1 Finance is smart rebalancing. Using smart rebalancing, all deposits will be automatically invested in your portfolio without your manual input. When withdrawals are taken out of your account, it will automatically rebalance your portfolio so it has the correct weight of your holdings at all times.
Rebalancing is a crucial aspect of investing. Rebalancing ensures your portfolio has the correct ratio of holdings and makes sure you are not taking more or less risk than you originally planned.
For example, if you held a portfolio of 50% stocks and 50% bonds and the stock portion grew faster, your portfolio is now 60% stocks and 40% bonds.
Your risk has increased by not rebalancing your account because you are more exposed to stocks.
To tone back risk, you would sell off some of the stocks and buy bonds to get back to your 50% stock and 50% bond portfolio. M1 Finance does this automatically, for free.
M1 Finance is truly a hybrid platform because you can choose your investments or simply automatically invest in one of the prebuilt M1 portfolios.
However, the platform only offers one trading window per day. So, it is not an ideal place to do day trading. It is mostly intended for long term investors who are looking to automate their investing.
The M1 Finance platform offers free Individual Retirement Accounts. This feature is very valuable as most investing platforms charge annual fees for IRA accounts. Within M1 Finance you can open a Traditional or Roth IRA.
M1 Finance retirement account minimums are $500.
If you would like to roll over your 401(K) to an M1 Finance IRA, M1 Finance offers a free rollover concierge to assist you with your rollover. They will guide you through the paperwork and help you make the transfer as easy as possible.
With M1 Borrow, you can borrow up to 35% of the value of your portfolio. You can then use the money you borrow to make investments on margin.
You will not have to speak to any loan officers, go through and credit checks, or even deal with loan denials when you borrow with M1 Finance. It is automatic!
M1 Borrow features an exceptionally low-interest rate of 5.0%. However, for M1 Plus members, the interest rate is 3.5%.
If you are a beginner investor you may not want to build your portfolio from scratch. This is what makes M1 Finance so attractive to new investors. M1 Finance has a variety of expert portfolios or “pies” available for free.
Portfolios include underlying stock and bond allocations, hedge fund followers, and even target-date retirement funds. Most brokerages would charge a fee for these portfolios, however, M1 Finance does not.
These portfolios are built using Modern Portfolio Theory and are intended to serve as fully passive investments allowing you to "set it and forget it".
Through M1 Spend, you can have your FDIC-insured checking account. These checking accounts are directly integrated into the M1 app, so they are incredibly convenient to use.
You can even invest money without waiting for a three-day ACH bank transfer. Through M1 Plus, the premium debit card, you can also earn cashback and 1.3% APY.
Another benefit of the M1 debit card is that you can receive your paycheck 2 days early with direct deposit.
The M1 credit card, called the Owner's Rewards Card, is one of M1's latest features.
With this credit card, you have the opportunity to gain up to 10% cashback! When you make a purchase with a company you 'believe in,' you are awarded cashback. To 'believe in' a company means you own that company's stock. For example, if you make a purchase with Apple, and you own any portion of their stock, then you would get cashback rewards. This does not apply to index funds or ETFs.
There are currently over 70 participating companies that are separated into 3 tiers. The bottom tier provides 2.5% cashback. The second tier 5%. And the third tier, 10%. The card also offers 1.5% cashback on every other purchase.
A great feature of this credit card is that you can set your cashback to automatically invest in your pies.
All M1 members are able to apply for this credit card. However, for M1 Plus members, the $95 annual fee is waived.
Investors can choose to upgrade their accounts to M1 Plus in order to take advantage of more advanced features on the platform.
These features include an additional trading window each day, access to a high-yield checking account, access to a cashback debit card, and lower interest rates for M1 Borrow.
The cost for M1 Plus is $125 per year. You can actually get the first 3 months free when you sign up!
Using a simplified method of tax-loss harvesting, M1 Finance offers options to sell positions in the most tax-favored way. This gives investors the advantage of keeping more of their dollars to themselves rather than paying more to the government.
The tax minimization strategy offered by M1 Finance helps potentially boost returns in your portfolio, by paying less in taxes.
M1 will sell securities in order of:
This strategy gives investors the advantage of selling positions in a tax-favored manner. Most other advisors do not offer tax-favored investing and many times will make this a manual rather than an automated process.
However, there are alternative robo advisors that offer more effective tax-loss harvesting strategies. If you are interested in this feature, we recommend checking out Betterment, the most popular robo advisor.
There are zero fees on M1 Finance.
Many people, especially those who are just getting started with investing, love the free aspect of M1 Finance. The lack of fees makes it very easy to get started on the platform.
M1 Finance does have account minimums, however. You must have a minimum account value of $100 to open an investing account on M1 Finance. If you would like to open a retirement account on M1 Finance, you will have to open the account with $500 or more.
M1 Plus costs $125 per year.
Charles Schwab is one of the most well known traditional online brokerages on the market.
The firm currently has over $3.3 trillion in assets under management making it the 14th largest banking institution in the United States.
With features ranging from full-service investment management from local advisors to do it yourself investing platforms, Schwab has services available to many different types of investors.
Schwab offers a variety of very useful features and can be the ideal platform for the do-it-yourself investor.
Investors can choose to invest in multiple types of securities such as:
There is no account minimum to open a Schwab account. The exception is a Charitable Trust which must have a $5,000 minimum to open with Schwab. Also, certain Schwab managed accounts hold account minimums.
Schwab recently released a new fee structure allowing investors to buy and sell both stocks and ETFs for free. There are no longer commissions for each buy and sell of a stock or ETF.
Stock and ETFs: FREE
Mutual Funds: $49.95 to purchase, $0 to sell
Fixed Income: $1
These are fees for online trading, investors who use the Schwab automated phone service to place trades will pay a $5 charge. Placing trades with a live Schwab rep will cost $25 per trade.
As a much larger company, Charles Schwab can offer technology beyond M1's abilities.
This includes an Alexa skill, an Apple Watch app, and a dedicated iPad app for trading. Many of these offerings are not make-or-breaks for either platform, but with a much larger budget Schwab can afford to offer a wider array of options.
The Schwab platform offers a variety of managed accounts. This feature has a minimum investment of $25,000 and gives you ongoing access to a variety of model portfolios. Investors will pay a fee for this service.
Minimum of $25,000 to start. Initial planning fee of $300 and a monthly fee of $30 per month for ongoing planning. Investors will have access to a CERTIFIED FINANCIAL PLANNER™.
Depending on the magnitude of assets in your account you may be eligible to receive customized investment management by Schwab professionals.
Customized portfolios at Schwab begin with an account minimum of $100,000 for equity accounts. $250,000 minimum for fixed income accounts.
Schwab private client has a $500,000 minimum and charges a management fee of 0.80% per year. This will give you a team of investment professionals to help you create and adjust your financial plan.
Schwab offers online trading, as well proprietary trading software called StreetSmart Edge.® This platform will give investors real-time quotes and live streaming of market data as well as robust trading and charting tools. This platform is free to use.
This offering makes the platform more appealing to active traders as you are able to create a customized dashboard and execute trades rapidly. Long-term investors likely won't have any use for this software.
Schwab offers live 24/7 support via phone or online chat.
This is a feature that has largely gone away with many of the newer investing apps and online brokerages. However, if you decide to stick with one of the "old school" brokers like Schwab, you'll still have access to robust customer support.
The platform also offers a variety of resources to investors. Clients receive earnings news from well-known resources such as Reuters and Briefing.com. Schwab also provides market commentary from Morningstar, Credit Suisse, and more.
Both M1 Finance and Charles Schwab offer excellent platforms for investors. We find there are a few areas where they differ and features investors should be aware of.
Schwab is a good platform for more advanced traders or investors. If you have a more complex financial situation and need to work with a Financial Planner, then Schwab may be the better platform for you.
Schwab also offers more types of securities, if you are trying to trade options then Schwab will be a better platform.
Charles Schwab also offers college savings accounts using 529 Plans. If you are an investor looking to save for college either for yourself or your children, then Schwab has better options available.
Finally, StreetSmart Edge® makes Schwab a viable platform for active traders who need real-time access to market data and need to execute transactions rapidly.
M1 Finance is a good option for those investors looking to create portfolios of stocks and ETFs themselves or choose from a variety of prebuilt portfolios.
M1 Finance offers free expert-built portfolios called "Pies". Investors can choose from multiple different prebuilt portfolios for free.
The M1 Finance platform also caters to those investors with a smaller account minimum of $100 ($500 for retirement accounts) and offers a simple and easy-to-use interface.
Additionally, M1 is designed for passive investors. So if you're looking to automate your investing as much as possible, this platform will make it easy for you to set things up once and never worry about them again.
If you are looking to make a few trades in your account, and are relatively new to investing then M1 Finance may be the better platform for you.