In 2013, the way we trade stocks changed forever with the launch of a new free trading app called Robinhood.
In the past, you would have to pay commissions to your broker in the neighborhood of $5 to $10 per trade. Robinhood launched a commission-free trading platform that truly disrupted this industry.
Another platform, known as M1 Finance, followed suit a few years later. Robinhood pioneered the industry of commission-free trading, but now there are an array of free investing apps competing with each other looking for new customers. Since many of these platforms are 100% free, what sets them apart from each other is the features being offered.
M1 Finance is designed for more passive, long-term investors offering features like dividend reinvestment and prebuilt portfolios.
M1 Finance and Robinhood both offer beginner investors a seamless way to start investing. If you are trying to build investment portfolios or simply day trade, each platform caters to a specific type of investor. Robinhood offers an easy way to buy and sell individual stocks on a more frequent basis. While M1 Finance caters to a more long-term investing approach with building portfolios and holding for the long term.
In this review, we will be comparing the features of M1 Finance vs Robinhood and how these two investing apps compare.
M1 Finance Review 2021: Best Free Investing App?
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Robinhood Review 2021: Best Investing App?
|Minimum Account Balance||$100 ($500 Retirement Accounts)||$0|
|Investments||Stocks and ETFs on NYSE, NASDAQ and BATS||Stocks and ETFs on NYSE, NASDAQ, Options, Cryptocurrencies|
|Account Types||Taxable Account, Roth IRA, Traditional IRA, SEP IRA, Joint Trusts||Taxable Account|
|Margin||All accounts over $2,000 have automatic access to margin||Robinhood Gold tiered subscription starting at $6 per month, $2,000 minimum account balance|
|Short Selling||No||Through Options|
|Automation||Automated Deposits, Automated Rebalancing, Automated Investments||Automated Deposits|
|Dividends||Automated Reinvestment||DRIP (Coming Soon!)|
|Fractional Shares||Yes||Yes (Coming Soon!)|
|Tax Harvesting||Tax Minimization||No|
|Best For||Long Term Investors, Passive Investors, Dividend Investors||Short Term Investors or Traders|
If a modern-day robo-advisor and a brokerage had a baby, that child would be M1 Finance. This investing platform brings you the best of both worlds and provides options for both passive and active investors.
Passive investors can invest in one of the dozens of expert-built portfolios, automating the entire process with the helpful features offered. Active investors can build their own portfolios from scratch, or even build multiple portfolios to see which one performs the best!
M1 Finance is designed for long-term investing, so it is not a great platform for active traders. This is largely due to the one trading window per day (two if you have M1 Plus). Our favorite app for active stock trading is Webull.
All investing on M1 Finance is portfolio-based. Each one of these portfolios is called a pie, and each stock or ETF within the pie becomes a slice. You can hold up to 100 stocks or ETFs within each pie.
Other platforms offering robo-investing like Betterment or Wealthfront charge an asset management fee. M1 Finance does not charge anything. No commissions on trades. No asset management fee. It is truly 100% free and an option available to beginner investors.
Now, it is important to understand that these expert pies are not tailored to any one specific person. Other robo-advisors will build you a custom portfolio based on your goals and objectives. They also offer tax-loss harvesting, which M1 Finance does not. These M1 Finance expert pies are more of a “one size fits all” approach. However, they do have dozens to choose from.
There are no fees associated with M1 Invest.
M1 Borrow is a portfolio line of credit or a loan against your securities. The interest rate for these changes with the current market rates.
M1 Spend is a debit and checking account that integrates directly with your M1 Invest account. They have a 100% free option, but they also have M1 Plus, which has an annual fee.
The minimum to open an account with M1 Finance is $100 or $500 for a retirement account.
After your initial deposit, you need to have at least $25 in cash within your account for that amount to be invested across your pies (portfolio). You can also turn this feature off and manually invest more money instead.
One of the most significant advantages of using M1 Finance is the variety of accounts available. As mentioned earlier, Robinhood only offers cash and margin accounts.
M1 Finance offers…
M1 Finance also offers something called rollover concierge. This allows you to rollover an existing 401k or IRA to fund your account. They help you step by step with the entire process.
In total, they offer over 6,000 exchange-listed securities.
This includes stocks and ETFs that trade on the NYSE, NASDAQ, and BATs.
When you begin investing with M1 Finance, you have the option of creating a custom pie or investing in one of the prebuilt expert pies. You can also do both, as there is no limit to how many pies you can have!
A custom pie can hold up to 100 different stocks and ETFs.
You simply make your selections and decide what percentage of your portfolio you want going into each stock. For example, if you wanted to be tech-heavy, you could do:
Every time your cash balance is above $25, it will be invested across those four stocks. This is a more active approach to investing with M1 Finance.
For passive investors, expert pies are more up your alley.
There is no guesswork about portfolio allocation. You simply let the experts do the work for you. These portfolios are built based on generally accepted investing methodologies.
This also includes TDFs or target-date funds.
These are ideal for retirement investors. You simply select the year you plan on retiring and whether or not you want an aggressive, moderate, or conservative portfolio. M1 Finance does the rest, and the portfolio allocations change over time.
One of the most useful features of M1 Finance is automated rebalancing.
To understand this feature, it is best to think about the flow of money in and out of your portfolio. When you add money to your M1 Finance account, it will be spread across your different stock and ETF selections based on your target allocations.
However, your allocations will change with time.
You may have started with these allocations:
A week later, you find out you are:
This is because assets do different things at different times. Some move up, others move down.
When M1 Finance invests your cash balance across your portfolio, they will automatically buy more of whatever you are underweight (low) in. By doing this, they attempt to return your portfolio to the target allocations that you originally set.
When you take money out of your account, they do the opposite! They will sell more of whatever you are overweight (high) in. This will ultimately return you to your target allocations, or at least close to it.
Essentially, M1 Finance is buying low and selling high on your behalf.
One of our favorite features of M1 Finance is the fractional shares.
With most investing platforms out there, you can only invest in whole shares of stock. That might not be a problem with Ford, trading at around $10 per share. It is an entirely different story with Google, trading at over $2,000 per share!
If you wanted to buy a share of Google through most other trading apps out there, you would have to pony up over $2,000 and purchase a whole share. Not everyone has that amount of money to invest, especially beginner investors.
M1 Finance offers fractional shares of all assets on their platforms. This means that you can purchase as little as 1/10,000th of a share of these stocks. This allows you to build a well-balanced portfolio without a lot of money. It also allows for easier dividend reinvestment, as you do not need to wait until you have enough to purchase a whole share.
Both Amazon and Google trade at over $2,000 a share. However, if you wanted to, you could create a portfolio of 50% Google and 50% Amazon with M1 Finance and invest just $100. You would end up with fractional shares of both of these stocks.
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Dividend investors love M1 Finance thanks to the portfolio level DRIP or dividend reinvestment plan. As I am sure you know already, reinvesting your dividends allows you to earn compound interest.
Here is how dividend reinvestment works with M1 Finance:
This is a little different than a traditional DRIP.
The way this usually works is the dividends are invested back into the issuing stock, not across the entire portfolio.
M1 Finance has the goal of offering a well-rounded financial service to customers.
You can invest with M1 Invest, borrow money with M1 Borrow, and make purchases with M1 Spend.
One of the key advantages of using M1 Spend is the fact that your money is always available for investing! There is no three-day ACH bank transfer. You simply move funds from M1 Spend to M1 Invest, and you can invest the same day.
M1 Borrow is a low-cost and straightforward way to borrow money.
This could be money for a vacation, medical bill, car repair, or something else entirely. They offer you a portfolio line of credit at the lowest interest rate available on the market. You can instantly borrow up to 35% of the value of your portfolio. Since the stocks in your portfolio serve as collateral, interest rates are far lower than an unsecured loan.
M1 Spend is a checking account and debit card that integrates directly with your M1 Investing account.
The basic tier is entirely free, with no annual fees. M1 Plus offers 1% cashback and 1% APY on your balance for a membership fee of just $125 per year. It is important to note that this is a debit card and not a credit card!
Overall, M1 Finance has created a brilliant investing platform for long-term investors. Dividend investors are particularly interested in the portfolio-level DRIP, which allows them to reinvest and earn compound interest. However, it is not an ideal platform for short term traders. The portfolio-based investing model does not make sense for short-term trading.
Beyond that, M1 Finance only offers one trading window per day unless you pay for M1 Plus. This is the time when all trades for user accounts are placed. This trading window helps M1 Finance cut down on fees. This is not a trading platform, it is a long-term investing platform.
The automatic rebalancing features and fractional shares allow you to put your portfolio on autopilot while remaining fully invested. You are also able to build a well-diversified portfolio with a much smaller amount of money.
Active investors can build their own pie (portfolio) from scratch. Passive or hands-off investors can lean on the experts and invest in one of these curated portfolios. M1 Finance is also one of the only free investing platforms out there that offers retirement accounts!
They also offer useful features above and beyond the investing account in the form of low-cost borrowing against your account and a checking account that integrates directly with the brokerage. Overall, it has great features for the long-term and dividend investors.
This is the most well-known free investing app out there, and the original pioneer of this era of free investing. It is designed to be the most beginner-friendly platform out there that anyone can pick up and use. That being said, it is a great platform for beginners, but it might not be for intermediate to advanced investors.
Most people start out with a simple platform like Robinhood, but over time they may grow out of the features being offered.
Here are a few common complaints we hear about Robinhood:
It's also important to keep in mind that Robinhood is meant to be a platform that investing novices can get up and running on quickly. For that reason, they're not going to complicate their interface with the massive amounts of data and tools that an app like Webull will offer.
That being said, there are also a few areas that Robinhood receives a lot of praise for:
Robinhood only offers taxable cash and margin accounts. No retirement, custodial, etc.
The minimum balance is $0.
They have been teasing about a retirement account offering, but as of April 2021, they still do not offer retirement accounts. We believe that this would make Robinhood a stronger platform, especially for longer-term investors, so we hope they include this account type in the future.
If you open a margin account with them, you will pay margin interest. That's because you'll be borrowing money from Robinhood to invest with.
There are a few other fees you should be familiar with. The first is an outgoing account transfer fee. If you decide to transfer your Robinhood account to another brokerage, you will pay them a fee of $75. ACH bank transfers are always free, but domestic wire transfers are $25, and international wire transfers are $50.
You can read the entire Robinhood fee schedule here.
This is a paid subscription offered by Robinhood that gives you access to several different features.
The first is access to margin, which of course requires a margin account.
Second, you'll have access to larger instant bank deposits.
Third, you can take advantage of professional research reports from Morningstar.
The last benefit is level II market data to see more information on bid/ask prices.
For traders looking for margin, Robinhood offers easy access. It is essential to understand that margin trading is high-risk, and it is not recommended for beginners.
Cash Management is an online bank account with an above-average APY. This means that even if you have idle cash in your account you'll be earning interest on it.
Because Robinhood is not a bank, they have partnered with 5 program banks to offer this service. Your money will be FDIC insured up to $1.25 million (that's 5x what you typically get from banks!) The higher FDIC coverage is due to your money being spread across 5 different banks and each offering $250,000 in FDIC insurance.
This account also comes with a custom debit card that you can use to easily spend money from your account.
Another benefit to keeping money in a Robinhood Cash Management account is the ability to quickly move it to your investment account. An ACH transfer from an outside bank account could take up to 5 business days, so if you want the flexibility to jump into promising investments, it might be a good idea to keep some cash sitting on the sidelines.
In order to support long-term investors, Robinhood offers a number of features to make buy and hold investing more accessible.
The DRIP or dividend reinvestment program allows investors to automatically reinvest dividends they receive from stocks or ETFs back into the issuing security. This reduces your cash drag and ensures that all of your money is working for you.
Fractional Shares mean that Robinhood investors are able to buy 0.000001 shares, rounded to the nearest penny, or just $1 of any stock, with zero fees. This is especially helpful with stocks like Amazon that trade for over $3,000 a share. When buying a stock you now have the option to choose whether to make your trade in terms of the # of shares or the # of dollars worth of stock.
There is a customer service email firstname.lastname@example.org that you can email for help and Robinhood can also be reached via their phone number (650) 940-2700.
Robinhood is not well known for its customer service, and users have reported difficulties trying to get in contact with the brokerage. Users can also create a support ticket to get in touch with a representative, but it may take some time for them to reply.
Overall, this platform is a solid pick for a complete beginner.
They offer basic research tools and order types, and they allow you to trade a variety of different assets, including cryptocurrencies and options contracts. When looking at the competitive landscape as a whole, Robinhood has a significant edge here.
Since you can’t open a retirement account with Robinhood, you will be paying taxes on all of your capital gains. Retirement accounts like the Roth IRA allow you to invest tax-sheltered.
Intermediate to advanced traders or long-term investors (particularly dividend investors) will likely find that the platform has many of the features that they need and keeps things as simple as possible.
Both M1 Finance and Robinhood offer commission-free stock trading.
However, the overall similarities end there. Robinhood is designed for the beginner active trader while M1 Finance is designed for long-term investors, particularly dividend investors.
Robinhood has a $0 account minimum while M1 Finance has a $100 account minimum or $500 for retirement accounts. Fractional shares are offered on M1 Finance as well as Robinhood.
Investors looking for retirement accounts will be leaning towards M1 Finance, as Robinhood does not support retirement accounts currently.
Investors looking for alternative assets like cryptocurrencies and options will be leaning towards Robinhood, as M1 Finance does not support these assets. However, you could always just open a Robinhood account to purchase these specific assets and keep your stock and bond investments with M1 Finance since both platforms are free.
Robinhood offers DRIP or dividend reinvestment on an individual stock level. M1 Finance offers a portfolio level DRIP. When dividends are earned, if the balance exceeds $25, the money is invested across your portfolio based on your set allocations. Thanks to the fractional shares, you can remain fully invested in reducing your idle cash.
M1 Finance offers guidance in the form of dozens of expert pies (portfolios). They do not charge any fees to invest in these expert-built portfolios. This also includes target-date funds, which are great for retirement investors. Robinhood does not offer any pre-built portfolios or guidance.
Finally, M1 automatically rebalances your portfolio as you add or withdraw money. With Robinhood, you will have to rebalance your portfolio on your own. At the end of the day, both are completely free meaning you could try them both and see which one you like better!