The first step to any successful investment strategy is finding the right online broker. And, with so many options to choose from, it can be a daunting first task.
That is why at Investing Simple, we are committed to breaking down some of the most popular online brokers and comparing their features, fees, pros, and cons to help you make the right decision.
In this article, we will be continuing that trend by reviewing SoFi vs M1 Finance, two of the hottest online brokers on the market now!
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Have you ever walked into a store, browsed a few aisles, and thought "Wow this place has it all." This is exactly how I feel about SoFi, the popular online finance tool that acts as a one-stop-shop for all of its users.
Now I know what you're thinking, a one-stop-shop? Matt, this isn't Home Depot.
While no, SoFi doesn't offer every product under the sun, it does have some fantastic financial services offered at very competitive prices. From student loans, to automated investing to personal lending, SoFi is committed to accommodating all of your financial needs, and at the convenience of your smartphone.
Let's take a closer look at some of its features.
Put plain and simple, SoFi's features are extensive. They cover many different areas of your finances, including offering a brokerage service.
SoFi's mobile app comes in at a very impressive 126 ranking on the Apple Store. The app is easily understandable for newcomers to personal finance, and if the 126 ranking on the app store doesn't speak volumes, you can take it from me.
SoFi offers stocks and ETFs on its platform. You do not pay any trading commissions.
SoFi also offers cryptocurrency on its platform, but understand that there is a 1.25% mark-up on each crypto transaction. This is something to keep in mind if you're looking to invest in Bitcoin or other cryptocurrencies.
An area where Sofi has the edge over M1 Finance is cryptocurrency. With Sofi, members gain access to a number of cryptos. They currently offer over 20 coins, which includes the most popular cryptos such as Bitcoin, Ethereum, Dogecoin, and Litecoin.
Read our full review of SoFi Crypto.
Robo Advisors have been very popular recently in the online brokerage industry, and SoFi has jumped on the trend. The process of automated investing is made into an easy three-step process on SoFi.
This is a great choice if you are new to investing and want to make sure you are well-diversified. The fact that SoFi does it for you makes it great for beginners.
SoFi's Stock Bits initiative lets you buy partial shares of companies and receive proportional returns on its growth and dividends.
For example, if you want to buy a stock that is $100, but you only have $10, you can still invest in that company. You will only receive the gains and dividends equal to $10 of ownership, however.
One of SoFi's latest offerings is its early access to IPO investing. Typically, IPO investing has been reserved for accredited investors or institutional investors. But now, with SoFi, members can actually invest like the rich!
It works by reviewing upcoming IPOs in the app. When there is one that interests you, you simply indicate your interest. Once the IPO goes live, you will be able to confirm your order.
M1 Finance is another online broker that has been in the spotlight for providing exceptional online brokerage services. It has a mobile app, a loyal customer base, and may be a great option for those interested specifically in the stock market.
M1 Finance offers portfolio customization, dividend reinvestment, automatic deposits, and a diverse array of expertly crafted investment portfolios or "pies."
These make it a unique and great choice for long-term investors who are more interested in passive strategies.
In contrast to SoFi, M1 Finance specializes in stock and ETF investing on its platform, and most of its features are market-related. They do not offer crypto or other features such as student loan refinancing or personal loans.
M1 Finance is truly fee-free and commission-free. Stocks and ETFs trade without commissions.
They do not offer crypto, however.
In addition, trades are placed in batches to cut down on costs. As such, they offer only 1 trading window per day, 2 if you have M1 Plus (paid premium plan).
Like SoFi's Stock Bits, M1 Finance's Fractional Shares let you buy portions of companies for a fraction of the full price.
In the case of M1, you can purchase as little as 1/10,000th of a share of a stock or ETF. This is powerful especially given how easy (and cheap) it is to create a well-diversified portfolio of companies even if their stock prices are sky-high.
Building a portfolio is a challenge in it of itself. Then, consider the fact that your portfolio will drift from your target allocations!
Let's say you have 50% of your money in one stock and the other 50% in another. You could start out at 50/50, but weeks later find that your split is now 60/40! It all depends on how your assets perform.
This phenomenon is referred to as portfolio drift, and you need to rebalance your portfolio to mitigate this. The good news is, M1 Finance does this for you automatically! As you add or remove money, M1 will return you to your target allocations as best as possible.
With M1 Borrow, investors are able to borrow against their portfolio by using a portfolio line of credit. This essentially allows you to borrow money from M1 at a lower interest rate by using your investment account as collateral.
On the platform, you're able to borrow up to 35% of your portfolio's value to use for whatever you would like. Members can access this line of credit with a low interest rate of 3.5%. With M1 Plus, the interest rate falls to 2.0%.
An M1 Spend account is a fully digital checking account and debit card issued by M1 Finance. You'll be able to use this card to avoid ATM fees, earn interest, and keep your cash ready to invest on the sidelines.
Typically, when you move money into your M1 investment account from an outside bank, it will take multiple days for your funds to arrive. However, transfers from M1 Spend are instant and allow you to get your money invested much faster.
The account is available to M1 users on the free plan as well as M1 Plus. However, you'll need to be on the M1 Plus plan in order to take advantage of some of the more attractive benefits of M1 Spend like earning 1% cashback on all of your purchases.
Another benefit of the debit card is receiving your paycheck up to two 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 card. However, without an M1 Plus membership, there is an annual fee of $95.
There is a $100 account minimum required to open up an M1 Account ($500 minimum for retirement accounts).
Though it was not mentioned in the features offered section, M1 Finance does have a premium account where you can unlock more advanced features. The membership-based pricing format will run you $125 charged annually for access to these upgraded features.
With M1 Plus, you get:
Both SoFi and M1 Finance come with their own list of pros and cons. They also come with unique features that set them apart from one another. If you are looking for a catch-all brokerage service that gives you many different features to solve diverse financial needs, SoFi may be a great choice for you.
If instead, you are looking for a more investment-related service that specializes in long-term passive investing, M1 Finance may work best. In the end, it all comes down to your personal goals and preferences for what you need in an online broker.
Both of these brokerages offer convenient features such as prebuilt portfolios, fractional shares, and commission-free trading. However, one key difference is that SoFi has an open trading window while M1 Finance has a limited trading window. If you are looking to buy and sell stocks with precision, this may be a deciding factor for you.