M1 Finance: Why I Transferred My IRA From Vanguard

Last month, I transferred my entire rollover IRA from Vanguard to M1 Finance due to what I believe is a superior investment experience that M1 offers. 

I joined M1 Finance in 2018 as an opportunity to test out a newer investment platform. Since then, I’ve utilized M1 Finance for one of my taxable brokerage accounts.

Here we’ll cover why I believe M1 Finance is an excellent consideration as an investment and financial services platform.

What is M1 Finance?

M1 Finance is a financial services firm started in 2015 by CEO and Founder Brian Barnes. Located in Chicago, M1 Finance offers investors a free way to invest via its original, basic service referred to as M1 Invest.

Overall, M1 offers three primary services:

1. Invest
2. Borrow
3. Spend

Across these services, M1 Finance offers a free account version called M1 Basic Account and an enhanced, annual fee-based option called M1 Plus Account.

We’ll first explore the three primary services and highlight some of the differences and benefits of M1 Basic vs. M1 Plus.

1) What is M1 Invest?

This is the original, and perhaps more recognizable, feature and product of M1 Finance.

M1 Invest provides users the ability to leverage custom and/or professionally-made portfolios across stocks, exchange-traded-funds (ETFs), and other listed securities.

Utilizing the concept of Pies and Slices, M1 Invest enables investors to create one or multiple Pies as portfolios.

Each Pie is a collection of underlying slices composed of individual or multiple stocks and ETFs. These are the building blocks of your portfolio.

M1 Invest will then automatically allocate available cash toward your specified allocations and percentage weightings. This could come from dividends reinvested and/or from additional funding contributions that you add to your account.

In my taxable account, I utilize the Pie that I created called the Balance Dividends Monthly Deluxe portfolio, which I’ve written about previously in another M1 Finane post.

The portfolio has evolved over time, as the holdings and names within the portfolio have also changed.

Review of M1 Finance Invest

Here is a breakdown of the primary sections within the M1 Invest dashboard.

Portfolio

On this tab, users can view and edit the details of Pies in different sizes across accounts. 

An examle of one my Pies is below:

Activity

The second section is the activity tab. Here we’re able to view transaction history, such as dividends, withdrawals, buys, sells, and other activity. 

Here you can view a description or summary of your activity and the value of the activity.

By clicking on or expanding on a specific transaction you get some additional details about the event. For example, you’ll be able to see the type of security and you’re able to dive further into the research tab from this specific view.

Holdings

Users can also access all of their individual securities via the Holdings tab. 

This section of M1 Invest displays the following summary:

• Positions
• Cost Basis
• Value
• Unrealized Gain

You can also sort or filter on different line items within the table containing the securities in the portfolio. 

Details in this section include:

• Name – the name of the security
• Shares – the number of shares for a particular security
• Avg. Price – the average price of the security for that position
• Cost Basis – the cost to acquire or purchase the current position and number of shares in that security
• Maintenance Requirement – the minimum amount of equity that must be maintained when using M1 Borrow.
• Unrealized Gain – the unrealized gain (or loss) for that particular security position
• Value – the current value of that particular security position (based on the current number of shares and market price)

Similar to the Activity section, you can click on or expand a specific security line item to see some additional details.

Funding History

The final tab within the M1 Investor section is the Funding History. 

Here users can see a helpful or chart that shows deposits or withdrawals throughout the duration of the history of your account. 

As noted on the page, some types of transfers may not be reflected within the graph; you’re able to find out additional details via the screen.

It’s also quite nice to see the reoccuring dividends coming in to feed the Balanced Dividends Passive Income Engine!

2) What is M1 Borrow?

Borrow is the third primary product of M1 Finance.

It offers investors an opportunity to borrow, via a loan, a certain portion of the amount in your M1 Invest account.

Review of M1 Finance Borrow

Currently, users can borrow at what M1 Finance says is one of the lowest rates in the industry: two percent (2%) if you utilize M1 Plus. If you’re utilizing the M1 Basic Account, the rate is three and a half percent (3.5%).

You can borrow up to 35% of your portfolio when you have at least $10,000 in your taxable brokerage. To be clear, this does not appear to be available for retirement accounts – only a taxable brokerage account.

M1 suggests some of the reasons for consideration as to why you may wish to use the Borrow service:

Reasons to Consider Utilizing M1 Borrow

While everyone’s unique situation will be different, here are some thoughts on these examples:

Get Extra Buying Power

This is actually trading on margin, which I do not recommend nor have I attempted before.

Yes, I understand your gains could be amplified, but  so could your losses.

Large Personal Purchase

This includes items such as paying for your wedding.

Perhaps if you wanted to start a business and you didn’t want to delve into other retirement savings, or just don’t have funds available, M1 Borrow could be an example.

Handle an Emergency 

Ideally, you should have cash set aside to cover a basic or small unforseen expense. You might  generally hear that it’s recommended to have three-to-six months of living expenses set aside prior to investing.

While I do think this could be a large amount, and that you should be able to invest prior to that, it still makes sense to have some cash in liquid savings.

If needed, I view borrowing as a last resort.

Other Examples

The other referenced examples include remodeling your home or refinancing other debt, such as student loans credit car auto loans.

Utilizing M1 Borrow to paydown other debts might be a good consideration if you’re paying a much higher rate for certain debts vs. if you’re eligible for the 2% rate with M1 Plus.

Benefits vs Risks

Always remember the risks involved with any type of borrowing.

Among others, here are a few of the key risks that M1 mentions.

I am not currently utilizing M1 Borrow. However, if you are interested in making your own amortization schedule, you’d be able to do so. M1 lets you pay them back at any time.

3) What is M1 Spend?

One of the newer, but also primary, components of M1 Finance is M1 Spend. 

Where M1 Invest gives users the opportunity to invest, as the name implies, M1 Spend offers you the ability to do what its name suggests as well – to spend!

Review of M1 Finance Spend

M1 Spend creates a checking account with you at M1 Finance via Lincoln Savings Bank.  

I decided to open up an M1 Spend account as part of my upgrade to M1 Plus, which has an annual membership fee of $125. 

M1 Plus Accounts currently receive one percent (1%) APY on your M1 Spend checking account. The M1 Basic Account does not offer any APY. More to come in that just a moment.

Transactions

Within the Transactions section of M1 Spend, you can see pending and completed activities.

These can include interest received from your M1 Plus checking account, direct deposits, debit card purchases, and other transfer activity.

Debit Card

In the Debit Card section, you can request a debit card, which is optional. I decided not to get a debit card, as I rely on my credit cards and other electronic forms of payments.

With M1 Spend via the M1 Plus Account, you currently receive a 1% cash back rate on any purchases made with your debit card

Direct Deposit

Here you can find the details in order to directly link direct deposits to your M1 Spend account. This is optional.

As mentioned:

I have not yet used M1 Spending to make a purchase, but I do have a small portion of my paycheck from one of my side hustles getting deposited automatically here every two weeks.

I’m utilizing this account as part of my wider Balanced Dividends Ecosystem.

Review of Other M1 Finance Sections

Aside from M1 Invest, Spend, and Borrow, the M1 Finance platform contains two other primary sections:

1. Research
2. Transfers

Here is a summary of each of these sections.

Research

The research section is probably closest associated with the M1 Invest service. It’s composed of 6 sub-sections.

1) Market News

Within this section, you can find sub-tabs that include market news where it’s plugged into the major news outlets. 

Among other things, you can see the major market indices and their latest performance, as well as news updates and major trends.

2) Stocks

The second subtab is level 2 stocks as of this feeling that are 3931 total stocks available with an M1 Finance platform as of this writing. (Note: it changed to 3929 a couple of days later when editing this article.)

Certain of the tools available include filters for the following:

• Market Capitalization
• Price to Earnings, or P/E, Ratio
• Dividend Yield Percentage (%)
• Industry Sectors

Related: Your Asset Allocation vs. The Periodic Table of Investments

Within the table of results users can see:

• The name of the security includes ticker symbol as well as the brand logo
• Market Cap in USD
• Current dividend yield 
• A basic graph of its price history for 1/2 in 5 years
• Price to Earnings, or P/E, Ratio

If a user selects one of the line items they’re taken to the particular security page where users again can use some of that same information in addition to more detailed news and a few other graphs that can be drilled down further. 

From here, a user can also add security to the watchlist or actually click Add To Portfolio where you have the ability to allocate or add that security to an existing Pie or Slice or create a new one from scratch.

Overall, I find the stock tab to be very basic. I would like to see some additional fields, such as dividend history and other pricing information that’s typically available within some of the other brokerage and investment platforms. 

3) Funds

The next section is the Funds page similar to the Stocks the number of similar filters and search mechanisms exist such as:

• Total assets or AUM transfer assets under management
• dividend yield percentage
• Expense ratio (%)

This latter option expense ratio is very important to me. One of the key things I look for is low-cost investing, whether it be an index fund or another type of passive investment. 

Generally, actively managed funds have a much higher expense ratio or cost to investors over the long-term. This can lead to much larger costs which then translates to less money in my pocket.

The Funds tab contains both ETFs and other funds.

her types of funds such as closed-end funds, among others.

4) My Pies

Within the My Pies tab, you can see Pies that are both in use and unused. The unused are those that just aren’t currently allocated to a portfolio.

By clicking Create New Pie users are taken back to the Stock tab where again you can repeat the process of researching and adding a particular security or collection of securities to your Pie.

Related: MoneyMade: Passive Income & Investment Ideas

 5) Expert Pies 

Although you have the ability to create your own custom portfolio of Pies and Slices from scratch, you can also leverage pre-existing Pies.

These Expert Pies are primarily composed of various ETFs that mimic a particular theme or strategy. The Expert pies include:

• General Investing – ranging from ultra-conservative to ultra-aggressive in terms of risk and growth
• Plan for Retirement – these are essentially target date or retirement date funds ranging in conservative, moderate, and aggressive growth/risk categories.
• Responsible Investing – these are effective Environmental, Social, and Governance (ESG) based strategies
• Income Earners  – portfolios focused on dividends and income
• Hedge Fund Followers – strategies that attempt to follow and mimic large hedge funds
• Just Stocks & Bonds – various portfolios of different percentages weightings of stocks and bonds
• Other Strategies – miscellaneous strategies, including different domestic/global value and growth, as well Cannabis.

I’ve yet to fully leverage one of the preexisting Expert Pies; however, I did come up with some interesting ideas but reviewing the offerings.

6) Watchlist

If you have elected to add any stocks or funds to your watchlist, they’ll appear in this section. 

The details covered include:

• Name
• Price
• Chance
• Market Cap
• P/E Ration

Clicking a particular security or line item will take you to either the detailed stock or fund page for that particular security.

Related: “What Is This Crap?” Clean Up Your Stock Watchlist

Transfers

The last main section of M1 Finance is the Transfers section. 

Within this main section, users can see their total sum of assets across the various buckets of M1 Finance. These include M1 Invest, Spend, and Borrow. 

Linked External Banks also appear in the section. This is your brick-and-mortar bank or banks that you use for funding and transferring to and from the various buckets of M1 Finance.

Within this section, you can see what was completed and any pending transfer activity.

Users have the ability to create up to unlimited rules that are five main types of rules:

• One-Time Transfer – a transfer between any account
• Recurring Transfer – you can create a funding schedule or fixed transfer
• Smart Transfer – available for M1 Plus Accounts, you can transfer money among M1 accounts automatically
• Direct Deposit – link your paycheck to your M1 Spend Account
• Account Transfer – rollover your 401(k) or transfer an IRA

Within Smart Transfer, there are currently three types of smart rules. Further details are below.

I also utilized the Account Transfer section when moving my rollover IRA from Vanguard to M1 Finance. You can also transfer your brokerage account or IRA to M1 Finance.

We’ll explore how to transfer an account to M1 Finance in a future post.

Related: Less is More: Updated Balanced Dividends Ecosystem

What type of accounts does M1 Support?

M1 Finance currently supports 3 main account types

1. Brokerage Accounts – both individual and joint
2. Retirement Accounts – different types of IRAs
3. Trust Accounts

Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones

1) Brokerage Accounts

M1 offers both individual and joint brokerage accounts.

2) Retirement Accounts

• Traditional IRA
• Roth IRA
• Simplified Employee Pension (SEP) IRA

M1 accepts both the transfer of existing IRAs to M1, as well as 401k Rollovers into an IRA at M1.

3) Trust Account

• Taxable Brokerage Account
• Spend / Checking Account

M1 Plus Account vs. M1 Basic Account

As highlighted throughout this review, you can see some of the key differences and benefits between the M1 Plus Account and the M1 Basic Account.

Here is a summary:

A few specific highlights, among others, are below.

Smart Transfers

One of the interesting features with M1 Plus is the enhanced interconnectivity between M1 Invest and M1 Spend.

For example, users can create Smart Transfers between M1 Spend and Invest. As an example, if let’s say I have a rule where my Spend account goes over $500, I can take the excess and have that automatically allocated or invested via my M1 Invest account.

Smart rules are one of the available benefits from M1 Plus.

Second Trading Window

One of the other features of M1 Plus is access to a second trading window. Within M1 Invest, the free version only processes your orders automatically and has them executed at the beginning of the opening trading day window. 

M1 Plus gives users an opportunity to participate in the second trading window, which is towards the end of the trading day.

With the trading window(s), it’s important to remember:

You do not have the ability to select a specific time and/or price that you want a security to be bought or sold. M1 Finance, via automation, maintains your asset allocation and weighted holding percentages.

Pros and Benefits of Using M1 Finance

Here is a recap of some of the benefits of the M1 Finance platform.

Automation & Rebalancing

M1 Finance offers dynamic rebalancing combined with various other levels of automation. You also have the ability to turn on/off certain features if you wish to retain different levels of control.

Fractional Shares

While other investment platforms might offer fractional shares, M1 Finance does it for free. 

Combined with the automatic rebalancing capability, you get a great free way to continue to build wealth over time with your investments.

Interest Checking and Cash Back M1 Debit Card

With the M1 Plus Account, you’ll earn cash back and interest on any purchases and balances in your account.

Admittedly, the rates aren’t terribly high, but they’re still currently some of the best I’ve seen in an already low-rate interest environment.

M1 Finance Smart Transfers

As mentioned, one of the interesting features with M1 Plus is the enhanced interconnectivity between M1 Invest and M1 Spend via Smart Transfers. 

Other more common rule types do exist, but the Smart Transfers are a very useful feature.

Portfolio Line of Credit with M1 Finance

With M1 Borrow, you can access some of the lowest borrowing rates in the industry.

Custom and Prebuilt M1 Finance Portfolios

With the ability to select from nearly 6,000 securities, you’re in control of your portfolio. 

Whether you want to obsess over every little detail or leverage a more automated, pre-made solution, M1 Finance’s platform offers you the ability to do as little or as much as you prefer.

This customization really sets M1 apart from its competitors.

Cons and Drawbacks of Using M1 Finance

Here are some considerations prior to utilizing M1 Finance.

No Mutual Funds Accessible via M1 Finance

Despite having nearly 6,000 securities available as of this writing M1 doesn’t offer access to invest in open-end mutual funds.

Vanguard, for example, has some terrific low-cost mutual funds. While investors on M1 Finance can access the Vanguard ETF equivalent of some of the mutual funds, you’re only able to access Vanguard mutual funds if you have an account with Vanguard (or perhaps via a 401k plan, etc.).

U.S. Citizens and Permanent Residents Only to Open a M1 Finance Account

As the M1 site states:

At this time, only US Citizens and Permanent Residents (Green Card holders) over the age of 18 with a current US residential address and phone number can apply to open an M1 Account.

If you don’t meet these eligibility criteria, then you’ll need to find a different investment platform.

No Tax-loss harvesting on M1 Finance

With the aforementioned inability and/or restrictions to buy/sell individual securities at specified times or prices, you don’t have the ability to specify which holdings to sell if you intend to utilize losses to offset any gains.

With the single trading window, or two if you’re on M1 Plus, you won’t have the ability to buy/sell at whatever price/moment during the trading day.

M1 Finance Doesn’t Offer Options Trading

I’ve only dabbled in basic options trading very briefly. I didn’t find it to my liking.

Regardless, M1 doesn’t offer it. Robinhood, as well as others, do offer options trading, but a whole other set of potential rewards and risks come with options trading. 

That’s a separate topic for a different day.

No Cryptocurrency Investing/Trading on M1 Finance

I’ve yet to dive into the world of crypto. 

Regardless, M1 Finance does not currently offer crypto trading or investing.

You Must Open a M1 Finance Taxable Brokerage Account in Order to Open a Retirement Account

According to the M1 site:

Every M1 user must first open an Individual Taxable account before opening any subsequent account. 

This isn’t necessarily a bad thing. 

However, if you’re only interested in utilizing a retirement account at M1 Finance, you’ll still need to open a taxable brokerage account first.

How does M1 Finance compare to other brokers and solutions?

While there are some other great options, M1 Finance sets itself apart from its competitors by focusing on an intuitive, modern investment experience.

Here are some highlights and differences on how M1 Finance compares to other services:

What else should you consider if you want to use M1 Finance?

I moved my entire rollover (traditional) IRA from Vanguard to M1  because of its free trades and automated options. The interface and overall platform features are terrific. 

If you’re looking to invest in stocks and funds, I recommend you to check out M1 Finance.

Again, one of the key differences to note with M1 Finance vs. some other brokerage accounts, such as Robinhood, is that it is geared towards longer-term, systematic investing. 

If you’re looking to buy/sell individual securities at specified times/prices, or perhaps even day trade, then seek an alternative platform.

Looking Back And – More Importantly – Ahead

So far, I’ve been very happy with my decision to move my account from Vanguard to M1 Finance. 

While Vanguard is a terrific, low-cost investment services provider, I believe M1 Finance has a superior platform that will only continue to get better.

Overall, I find the M1 Finance investment experience to be great compared to other tools that I’ve utilized. M1 Finance will likely remain a core part of my investment strategy for many years to come.

Readers, what do you look for in an investment platform or service? Have you utilized M1 Finance before? If so, which services?

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Related:

MoneyMade: Passive Income & Investment Ideas

Passive Income Engine: Building a Balanced Dividends Portfolio

8 Income Producing Assets for Wealth Building

Your Asset Allocation vs. The Periodic Table of Investments