Online investing has drastically changed over the last decade. Now there are countless investing apps, robo-advisors, and traditional brokerage firms to choose from. In this article, we compare a titan of the brokerage industry, Vanguard, against a new player to the game, M1 Finance.
Vanguard is the largest provider of mutual funds in the world, with over $5.3 trillion in assets under management.
M1 Finance is an up and coming brokerage offering online trading of stocks and ETFs to investors all commission-free and fee-free. Currently M1 Finance has just over $2 billion in assets under management
So the question is, which platform is better for investors?
M1 Finance Review 2020: Best Free Investing Platform?
||Visit M1 Finance|
Vanguard Brokerage Review 2020: Best Investing Platform?
||Invest With Vanguard|
|Minimum Balance||$100 ($500 Retirement)||$0|
|Fees||None||$20 Service Fee (Waived With Electronic Statement Delivery)|
|Assets||Stocks, ETFs||Stocks, ETFs, Mutual Funds, Bonds, Options, CDs|
|Automated Rebalancing||Yes||Offered On High Value Accounts|
|Trading Window||1 Per Day (2 With M1 Plus)||Open|
|Best For||Automation Features||Buying Stocks/ETFs As Well As Vanguard Funds|
M1 Finance is a relatively new investing platform that launched in 2015. This app is designed to be a brokerage/robo-advisor hybrid, offering a number of features that allow investors to automate their entire investment portfolio.
A few examples of these features are fractional shares, expert pies, automated rebalancing and more!
Vanguard charges management fees and creates funds that have expense ratios for investors. M1 Finance takes a different approach to making money. Instead of charging fees and commissions, they make money in a few different ways. Here's our article on how M1 Finance makes money!
M1 Finance offers a free online investing platform and mobile app for its users.
It is easy to open an account and you can begin investing with as little as $100. You start by creating your portfolio which M1 Finance calls a pie. You can customize your pie with a variety of stocks and ETFs offered on M1’s platform, including Vanguard ETFs. All trades are 100% commission free.
We are going to highlight some of the key features here. If you want to read about all of the features, check out our comprehensive M1 Finance review here!
M1 Finance is 100% free to use. As long as you meet the $100 account minimum ($500 for retirement accounts) you can start using M1 Finance for free.
There are no fees charged to use its platform. Only underlying fund fees which are paid to certain ETFs on its platform.
When you buy shares of stocks or ETFs with M1 Finance, you are buying fractional shares.
In fact, you can purchase as little as 1/10,000th of a share of any stock or ETF that trades on the platform.
This is very handy for stocks that trade at a high share price like Amazon. This stock is currently over $2,000 per share. Other brokerages would require you to purchase an entire share. With M1 Finance, you can buy as little as 1/10,000th of a share.
If you wanted to, you could invest $10 in Amazon stock with this platform. If you buy shares of Amazon through Vanguard, you will have to purchase whole shares.
When money is added to your portfolio, M1 Finance will automatically rebalance your portfolio.
They will accomplish this by buying more of what you are underweight in and less of what you are overweight in.
Your portfolio will always move away from the target allocations, and this is a phenomenon known as portfolio drift.
They will also rebalance as you sell. This is accomplished by selling more of what you are overweight in and less of what you are underweight in.
Most investors forget to rebalance their portfolios, or they do it very infrequently. This could result in your portfolio being too conservative or aggressive. M1 Finance does their best to keep you as close to your target allocations as possible.
If you want to build your own portfolio from scratch, M1 Finance allows you to do that with the Custom Pies feature.
However, if you are looking for some help when it comes down to what to invest in, they offer over 30 different expert portfolios that are completely free to invest in.
This includes stock and bond portfolios, target date retirement funds and more. Most of the ETFs in these portfolios are offered by Vanguard, BlackRock or iShares. These are all reputable fund companies known for having low fees.
By taking advantage of a retirement account, you're able to defer or potentially eliminate all taxes that you would owe on your investment gains. All retirement accounts have a different set of rules, but in general you'll only want to use these types of accounts if the money you are investing is meant for your retirement.
M1 Finance offers a variety of different types of funds investors can use within retirement accounts.
M1 Finance offers a feature similar to tax loss harvesting which they call tax minimization. This feature prioritizes your capital gains and losses by first selling losses that offset future gains, then selling lots that result in long term gains, then selling lots that result in short term gains.
By doing this, they are able to help reduce (or eliminate) the taxes you owe on your investment gains at the end of the year.
When you earn dividends on M1 Finance, those dividends go towards your cash balance. If you have auto-invest turned on, that money will be automatically invested across your entire portfolio once your balance exceeds $10.
This is considered to be a portfolio-level DRIP or dividend reinvestment plan.
In addition to their core offering, M1 Finance also provides investors with supplemental features called M1 Borrow and M1 Spend.
M1 Borrow allows investors to borrow against part of their portfolio at a relatively low interest rate. This is a useful service for individuals who need to borrow cash on a short-term basis at a lower rate than you would see on a personal loan.
M1 Spend is a checking account that gives investors the ability to aggregate their entire financial life on the M1 platform. You can set up direct deposit into your M1 Spend account and then automatically move money to your investments to streamline the process.
Vanguard is the largest mutual fund provider in the world and the second largest provider of ETFs.
They are a massive fund company with over $5.3 trillion in assets. They were founded by John Bogle.
Vanguard still holds true to their original mission statement, which is to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success. The goal of Vanguard has always been to make money for the clients.
One of the ways they have pioneered towards this goal has been through offering low-cost investment options for the public. Vanguard continues to offer some of the lowest-cost ETFs on the market and is well-known for providing straightforward and affordable funds.
As an investor, you can purchase Vanguard products in a number of different ways.
Vanguard offers many features typical of larger well-established online brokerages.
All stocks and ETFs trade commission free. This is new as of January of 2020.
You are also able to trade individual stocks and ETFs at any time during the trading day since Vanguard has an open trading window.
Vanguard offers over 3,100 no transaction fee mutual funds.
There is a $0 minimum to open a Vanguard brokerage account. However, the minimum investment for most Vanguard funds is $1,000.
The minimum to invest in stocks or ETFs is the cost of a single share, since they do not offer fractional shares.
Vanguard does offer some basic research tools for stock and fund analysis, however a common complaint about this brokerage is the lack of research tools.
To do effective fundamental or technical research, you'll need to go through another provider and only execute your purchases on Vanguard.
Vanguard offers 529 College Savings plans that investors can use to prepare saving and investing for college. Most States within the U.S. provide college savings plans, Vanguard is one of the cheapest plans available.
A major advantage of 529 plans is that they allow for earnings to accumulate tax-free if used for qualifying education purchases.
If you have a child who you expect to go to college, setting up a 529 plan now could be an effective way to put aside money to cover the rapidly increasing cost of college.
Vanguard offers commission-free trading for stocks, options, and ETFs.
M1 Finance offers commission-free trading for stocks and ETFs.
The minimum to get started with Vanguard is $0 while M1 Finance has a $100 minimum for taxable accounts and a $500 minimum for retirement accounts.
That being said, you do need to purchase whole shares on Vanguard. M1 Finance offers fractional shares, meaning you can buy as little as 1/10,000th of a share.
If you decide to purchase the Vanguard Index Mutual Funds through the site, pay attention to the fees. In most cases, the fees are actually higher for this product. It is also significantly more required as an upfront investment. For most Target Date Funds there is a $1,000 minimum and for most of the other funds it is a $3,000 minimum.
M1 Finance is very transparent about how they make money. They do not make money by charging customers hidden fees.
If you do end up going with Vanguard, make sure you opt for electronic delivery of statements. If you do not, you will end up paying a $20 annual account service fee.
M1 Finance offers a number of different options for customer service. The service team is available during the open market hours, which are typically Monday to Friday from 9:30am to 4:00pm EST. They offer phone support during set hours and email support.
Vanguard offers similar options, offering both phone support and email support. However, their phone support hours are Monday to Friday from 8:30am to 9:00pm EST. This is a greater time window.
Both M1 Finance and Vanguard are designed for long-term passive investors. If you are an active trader, neither platform is going to be a good fit for you. For that, we recommend the free trading app Webull. M1 just isn't going to cut it with the 1 trading window per day, and Vanguard is severely lacking when it comes to research tools.
M1 Finance is known to offer a number of features that long term, passive investors have found to be very helpful. Most of the expert pies that are offered on M1 Finance actually hold Vanguard ETFs in the portfolios since the fees are so low on these funds.
M1 Finance offers a variety of features that appeal to investors such as...
If you are just strictly looking to trade stocks and ETFs commission free, as well as invest in Vanguard funds directly on their site, the Vanguard brokerage account may be better for you. This is largely due to the open trading window. Those who have larger amounts to invest (over $3,000) may also find the Vanguard platform more accessible due to certain fund minimums.