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Written by Ryan Scribner on September 11, 2020
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M1 Finance vs Robinhood 2020: Best $0 Fee Investing App?

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. 

Robinhood is the original commission free trading app, offering stocks, options, ETFs and crypto.

M1 Finance is designed for more passive, long term investors offering features like dividend reinvestment and prebuilt portfolios.

In this review, we will be comparing the features of M1 Finance vs Robinhood.

Summary

  • Both offer commission-free stock trading.
  • Robinhood has a $0 minimum balance and M1 Finance has a $100 minimum balance.
  • Both platforms offer fractional shares allowing investors with smaller balances to diversify effectively.
  • Robinhood offers a stock-level dividend reinvestment while M1 Finance offers a portfolio-level dividend reinvestment.
  •  Retirement accounts are only available through M1 Finance. 
  • Robinhood allows you to trade stocks, ETFs, options and cryptos.
  • M1 Finance offers over a dozen expert built portfolios with no asset management fees.
  • Trades are placed once a day on M1 Finance, unless you have M1 Plus which gives you two trading windows. 
  •  Robinhood is a more beginner friendly platform while M1 Finance offers features that are geared towards long term and dividend investors. 
  • M1 automatically rebalances your portfolio as you add or withdraw money.
  • Idle funds in Robinhood are held in a Cash Management account and earn an above-average APY.
  • M1 Finance offers M1 Spend which is a debit card that allows you to earn cash back on purchases.
  • If you use our link below, you will get 1 free stock worth up to $200 from Robinhood!

M1 Finance and Robinhood are both free investing platforms. M1 allows you to invest in stocks and ETFs with a $100 minimum account balance. Robinhood allows investors to purchase stocks, ETFs, options, and crypto with no minimum account balance. M1 Finance offers automated rebalancing, fractional shares, and free prebuilt portfolios. Recently, Robinhood announced that they have added fractional shares and dividend reinvestment to the platform.

Sign up with M1 Finance here!

Sign up with Robinhood here!

FeatureM1 FinanceRobinhood
Minimum Account Balance$100 ($500 Retirement Accounts)$0
Trading Commission$0$0
InvestmentsStocks and ETFs on NYSE, NASDAQ and BATSStocks and ETFs on NYSE, NASDAQ, Options, Cryptocurrencies
Account TypesTaxable Account, Roth IRA, Traditional IRA, SEP IRA, Joint TrustsTaxable Account
MarginAll accounts over $2,000 have automatic access to marginRobinhood Gold tiered subscription starting at $6 per month, $2,000 minimum account balance
Short SellingNoThrough Options
AutomationAutomated Deposits, Automated Rebalancing, Automated InvestmentsAutomated Deposits
DividendsAutomated ReinvestmentDRIP (Coming Soon!)
Fractional SharesYesYes (Coming Soon!)
Tax HarvestingTax MinimizationNo
Best ForLong Term Investors, Passive Investors, Dividend InvestorsShort Term Investors or Traders

 

ProductFeaturesOverallPriceBuy Now
m1 finance review

M1 Finance Review 2020: Best Free Investing Platform?

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  • Assets
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  • Prebuilt Portfolios
  • User Interface
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Robinhood review

Robinhood Review 2020: Best Investing App?

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What Is M1 Finance?

M1 finance investing platform allows you to invest in individual stocks and ETFs for free. M1 charges no commissions or fees to invest. With a $100 minimum investment M1 gives investors access to their dynamic application.

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 in 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.

M1 Finance vs Robo-Advisor

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.

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.

M1 Finance Fees, Minimum & Account Types

There are no fees associated with M1 Invest.

They offer two other services known as M1 Borrow and M1 Spend, which do have some fees.

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 $10 in cash within your account for that amount to be invested across your pies. 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…

  • Individual Brokerage Accounts
  • Joint Brokerage Accounts
  •  Traditional IRA 
  •  Roth IRA 
  •  SEP IRA 
  • Trust Accounts

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.

M1 Finance Free Training

We put together a free 30 minute video training that walks you through the entire process, step by step.
This training will help you get up and running in no time at all.
Get The Guide

M1 Finance Investments

In total, they offer over 6,000 exchange-listed securities.

This includes stocks and ETFs that trade on the NYSE, NASDAQ and BATs.

They offer most of the securities that trade on these exchanges, but to guarantee order execution, they have some requirements for minimum trading volume or price.

As a result, some cheaper or low volume stocks are not available on the platform.

Custom & Expert Pies

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:

  • 20% Apple
  • 25% Google
  • 30% Netflix
  • 25% Microsoft

Every time your cash balance is above $10, 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 with time!

Automated Rebalancing

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:

  • 35% Apple
  • 20% Google
  • 30% Netflix
  • 15% Microsoft

A week later, you find out you are:

  • 27% Apple
  • 31% Google
  • 22% Netflix 
  • 20% Microsoft

This is because assets do different things at different times. Some move up, others move down.

How Automated Rebalancing Works

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.

Many investors never rebalance their portfolios, which results in allocations being out of whack. As long as you are continuing to funnel money into your portfolio, they will do their best to keep you on track. You can also manually rebalance your portfolio by clicking a button, but be cautious of this as it may result in a taxable event.

Fractional Shares

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 $1,000 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 $1,000 and purchase a whole share. Not everyone has that amount of money to invest!

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 $1,000 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.

Portfolio Level DRIP

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:

  1. When a stock you own within one of your pies pays a dividend, that money goes into your cash balance held within your brokerage account.
  2. Once that cash balance exceeds $10, that money is invested across your portfolio based on your target allocations.
  3. If you want to invest manually, you can turn off this automated $10 threshold.

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 Borrow & Spend

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% cash back and 1.0% 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!

M1 Finance: Summary

M1 Finance is a hybrid between a fee free brokerage and a modern roboadvisor

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 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.

What Is Robinhood?

Robinhood is a popular commission free brokerage

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: 

  1. The platform lacks research tools and is very basic
  2. Robinhood does not offer paper trading or a trading simulator
  3. You can't purchase mutual funds on this platform 
  4. They do not offer retirement accounts

It seems like Robinhood has heard our complaints, because recently they added fractional shares and dividend reinvestment to the array of features available on the app. Maybe retirement accounts will follow soon? No word from Robinhood yet, but stay tuned for all the latest updates!

That being said, there are also a few areas that Robinhood receives a lot of praise for:

  1. The minimum is $0 to get started, and trades are always commission free
  2. You can trade stocks, cryptos, ETFs and options
  3. They offer extended trading hours to all users for free
  4. You get a free stock when you sign up

Robinhood Fees, Minimum & Account Types

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 writing this, they still do not offer retirement accounts. We believe that this would make Robinhood a much stronger platform, so we hope they include this account type in the future.

There are no commissions paid to Robinhood when you place trades on the platform. There are regulatory trading fees that are passed along to the SEC and FINRA. These fees are paid regardless of what brokerage you use.

If you open a margin account with them, you will pay margin interest.

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.

Robinhood Order Types

  1. Market Order - The order will be filled at the next best available price.
  2. Limit Order - The maximum you are willing to pay for a stock or the minimum you are willing to sell for.
  3. Stop Loss Order - Buy when the set price is reached or sell when the set price is met.
  4. Stop Limit Order - A specific limit order is triggered when a set price is met.

Robinhood Investments

  1. US Exchange-Listed Stocks - Major companies listed on the NYSE or NASDAQ.
  2. US Exchange Listed ETFs - NYSE or NASDAQ listed exchange-traded funds.
  3. Options Contracts - Available on any US exchange-listed stocks or ETFs.
  4. Some Cryptocurrencies - Only available in some states, includes Bitcoin and Ethereum.
  5. ADRs For Over 250 Global Companies - Foreign stocks that trade on US exchanges via American depository receipts.

Robinhood Gold

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.

The second is larger instant bank deposits.

The third is professional research reports from Morningstar.

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.

Robinhood Cash Management

Cash Management is an online bank account with a higher-than-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.

Robinhood does state that they cannot guarantee your money will be evenly spread across the 5 banks so you might not be able to take advantage of the full $1.25 million in coverage at all times.

This account also comes with a custom debit card that you can use to easily spend money from your account.

Robinhood DRIP And Fractional Shares

Recently, Robinhood announced a number of exciting new features for investors!

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 means that Robinhood investors are able to buy 0.000001 shares, rounded to the nearest penny, or just $1 of any stock, with zero fee. This is especially helpful with stocks like Amazon that trade for over $1,000 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.

Robinhood: Summary

Overall, this is a decent pick for a complete beginner.  

They offer basic research tools and order types, and they allow you to trade some different assets, including cryptocurrencies and options contracts. With the addition of some new features, Robinhood has a very competitive 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 this platform is lacking in many areas.  If you don’t feel this is a good fit for you, keep reading!

Click here to sign up for Robinhood!

M1 Finance vs Robinhood: Final Summary

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 exotic 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.

 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 $10, 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. 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!

Keep Reading:

m1 finance vs robinhood
Article written by Ryan Scribner
Ryan Scribner is a personal finance YouTuber that is approaching 500,000 subscribers on his channel. He has created a thriving business around his passion, which is helping others navigate the complicated world of investing.

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