There are many brokerages to choose from. Today, more and more companies are offering similar services. For example, back in October 2019, Charles Schwab announced that it was offering its clients free trading on equities. The company also announced it was offering its clients the ability to buy fractional shares of stocks. Other companies followed suit, to include Robinhood that also announced it would be offering their clients fractional shares. With so many options, its sometimes hard for a new investor to decide which Brokerage firm to use. Today, we will cover M1 Finance.

In this post, I explore why I think a dividend growth investor should seriously consider M1 Finance. This is my updated M1 Finance review. My previous review of M1 Finance was done in 2018. Today, I will identify the top 5 features of M1 Finance in 2020. Links to M1 Finance and Robinhood are referral links, but this review is based on my honest opinion after using the platform for over 3 years. Let’s dive in!

Top 5 Features Of M1 Finance In 2020

Here are the top 5 features of M1 Finance in 2020:

1. M1 Finance is free
2. Low cost to get started
3. Fractional shares
4. Dynamic rebalancing
5. Automatic investing

Let’s explore each one.

1. M1 Finance Is Free

One of the best things about M1 Finance is that it is free. Specifically, it doesn’t cost you anything to buy or sell stocks. It doesn’t matter if you are investing $1000 or $100. The cost of the trade is free.

Not only are there no trading fees at M1 Finance, but there is also no annual fees.

I should note that you could sign up for M1 Plus that has an annual fee of $125. However, that is not required. I don’t have it, and I still am able to fully invest in my dividend portfolio with the free version of M1 Finance. See below for how M1 Finance compare to other brokerages in terms of fees.

Again, just to clarify, the $125 is only required if you get M1 Plus.

Admittedly, more and more companies are moving in the direction of free trades. But, that’s not the case everywhere. Although not all brokers are created equal, it’s hard to beat free in this day and age.

2. Low Cost To Get Started

M1 Finance only requires $100 to get started. Want to invest in Vanguard’s STAR Fund? The minimum there is $1000. Other brokerages have other minimum requirements.

$100 allows the small investor to get started sooner. Having a high minimum balance just to open an account is a real barrier to entry for some investors. Still, although $100 is low, it is not nothing. There are brokerages out there where the minimum to open an account is a WHOPPING $0. That’s right, zero, nada, nilch. Take Robinhood for example. The minimum to open the account is $0. But, keep reading. You’ll see why I prefer M1 Finance over Robinhood for dividend investing.

Although $100 is not $0, it is still a very low barrier to entry, comparable speaking. Thus, this is one of the key benefits of using the brokerage as a platform.

3. Fractional Shares

M1 Finance offers fractional shares. This is important. Let’s take Google as an example. As of today’s writing, Google is trading at about $1,421 per share. So, if you want to buy one share of Google, you would need to come up with $1,421. I don’t know about you, but that’s a lot for me.

Maybe you’re well off and you can afford Google. Well, at the time of this writing, Berkshire Hathaway stock price is $270,330 per share. In order to buy one share, you would need to come up with all of that money. But, with M1 Finance, you could invest in Google or Berkshire Hathaway for only $100. By the way, after you invest with the first $100, you can invest less than that amount into your portfolio.

Fractional share investing is the wave of the future and M1 Finance is right at the forefront. For small investors, this feature is almost a must in dividend growth investing.

4. Dynamic Rebalancing

This is one of the most unique features of this platform. Initially, I wasn’t a fan, but over time, I’ve come to appreciate the benefits of Dynamic Rebalancing. To understand this feature, let’s first explore traditional Direct Reinvestment Plans (DRIPs).

With DRIPs, when a stock pays a dividend, the dividend is automatically re-invested into that specific stock. So, let’s take my favorite stock, Realty Income (NYSE: O) as an example. At the time of this writing, O is trading at $55.49 per share and pays $2.80 in dividends per year, or $0.233 dividends per month per share. If I owned 10 shares in O, then using a traditional DRIP plan, the $2.33 per month dividends I earned would be invested back in to Realty Income.

However, M1 Finance is different. With M1 Finance, the $2.33 would be invested into your entire portfolio, not just the stock that paid the dividends.

Furthermore, with the platform, you set target allocations. Let’s take an example.

Say I have two stocks in my portfolio: JNJ and KO. both are weighted evenly at 50%. If the next month, JNJ raises to 60% and KO lowers to 40%, then my portfolio would be out of balance. What Dynamic Rebalancing does is that it takes new money I contribute to my portfolio according to my target allocations. So, with every contribution, more money would be distributed to KO and less to JNJ so that I achieve my target allocation of 50% in each stock.

By practicing dynamic rebalancing, I buy shares more shares when they are low and less shares when they are high. Ultimately, that works out in an investor’s favor.

5. Automatic Investing

One of the best features of M1 Finance not found in other brokerage accounts is that it has automatic investing. Here’s the general problem. If you want your money automatically taken from your checking account, and then automatically invested into stocks, then it’s hard to find a brokerage that does that.

Robinhood doesn’t. Neither does Fidelity or Vanguard. Truthfully, I don’t know of many other brokerage firms that have this feature. Sure, if you want to automatically invest in index funds or mutual funds, no problem. But to automatically invest into individual stocks? Good luck. M1 Finance is one of a very few reputable brokerage that I found that does this.

This set it and forget it feature is a game changer! Rather than worrying about which stocks to invest in every month, and how much, let M1 Finance dynamic rebalancing feature work for you. Moreover, you don’t have to log into your account every month. Truly, set it one time and let the platform do the rest. It doesn’t get much easier than this.

Cons Of Using M1 Finance

There is no such thing as a perfect brokerage and M1 Finance is no different. It’s not for everyone and it does have its drawbacks. These include:

1. Trading Windows
2. Customer Service
3. It’s Newer
4. No Bells and Whistles
5. Limited Asset Classes

Let’s examine some of the cons of using the brokerage.

1. Trading Windows

Do you want to trade stocks? M1 Finance is NOT for you! In order to keep costs low, M1 Finance have one trading window in the morning. They aggregate and execute all trades at a single time in the morning.

Those who chooses to pay for M1 Plus get a second trade window in the evening.

A single trade window per day shouldn’t be a problem for long term dividend growth investors. But, in case you wanted to practice intraday investing, swing trading, or any short term trading, you will have to find a different brokerage.

In fact, this is an important difference between M1 Finance and Robinhood. With Robinhood, you can buy a stock at the market price anytime during the trading day. Not so much with M1 Finance.

2. Customer Service

There should be little need to contact customer service. In fact, I had to do it only a few times, especially when I wanted to transfer my stocks from Computershare to M1 Finance. However, while they were mostly able to resolve my concerns, I find their customer service to be less than ideal.

At one point in time I was considering opening an account with Fidelity. I contacted their customer service, and got a knowledgeable representative quickly on the phone. With Charles Schwab, you have physical locations you can visit to talk to someone. But, with M1 Finance, sometimes I get a voicemail! They prefer you email them. That’s fine, but that’s not my preference.

I imagine customer service is lacking to help cut down on costs and that they are still a growing company. But, as of right now, that’s a con in my book.

3. Its Newer

Fidelity was originally formed back in 1946. Charles Schwab was originally formed in 1971. These companies have a long history, and has garnered a strong reputation of trust in the industry. M1 Finance, on the other hand, was established in 2015.

There is absolutely nothing wrong with a company starting in 2015. We all have to start somewhere. But companies come and go. Remember Loyal3? That company started in 2008 and shut down effective May 2017.

M1 Finance is no Loyal3. But the newness of the company is something I consider to be a con. Granted, you would expect that a brokerage that formed in 2015 will use the latest technologies and have the benefit of learning from the failure of others. I trust that my money is safe, after all, it is insured by the Securities Investor Protection Corporation or SIPC. My concern however is whether or not the business model is sustainable long term.

Despite my expressed concern, I honestly don’t lose sleep over this issue. However, if I am being honest, and this is indeed an honest review, I think that this is a con. As the years go by, I’m sure this con will turn into a pro.

4. No Bells And Whistles

There really are no bells and whistles when using the platform. Want great research and tools? Look elsewhere.

The platform also does take some getting used to. Granted, it’s not terribly difficult (once you know what to do), but I can’t say it’s the easiest to figure out.

They’ve made improvements since 2018. For example, you can now filter your activity to only show Dividends. But, some things are limited – like the fact that you can only link one bank to the platform. That’s a bit annoying, although transfers from my bank can sometimes occur in the same day!

5. Limited Asset Classes

Perhaps one of the biggest downsides to using M1 Finance is that the brokerage has limited asset classes. Specifically, the platform does not offer mutual funds, futures, options trading or Forex. And for those that are even more risk takers, you can’t buy bitcoin or other cryptocurrencies on the platform.

So, the intermediate or sophisticated investor will have to look elsewhere. But, the platform is great for beginner investors interested in buying stocks or ETFs. This blog focuses on investing in a diversified dividend portfolio of stocks. So, M1 Finance is ideal. But, as mentioned, it is not for everyone.

Final Thoughts on M1 Finance

For the aspiring beginner investor interested in dividend growth investing, look no further than M1 Finance. The brokerage offers free and automatic investing with a minimum balance of $100 to open an account. There’s even more to the platform, such as their expert pies, that I didn’t cover.

But although the brokerage is ideal for beginners, it is by no means perfect. It has limited trading windows and it doesn’t offer other asset classes outside of stocks and ETFs. While the platform has its issues, I do believe that the pros more than substantially outweigh the cons for the audience that M1 Finance targets.

Dividend Growth Investors will hardly find a better brokerage for all their needs than M1 Finance.

What brokerage firm do you use and why? How does it compare to M1 Finance? What did you think of this post? Let me know your thoughts by commenting below.

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