Investing: M1 Finance

M1 Finance is a brokerage platform that came on to the scene a few years ago. It took an interesting approach to investing in the market that we haven’t seen before. Some people love it, others hate it but we’re going to breakdown some of the pro’s and cons of the platform and what our overall opinion is of it.

M1 is a brokerage platform that is a mix between traditional stock investing and something you would see in a 401k retirement plan. It allows you to break your portfolio up into “Pies”. The pies resemble a Pie Chart and act accordingly. You then set up your Pie with different sectors, for example we set ours up as having 8 different sections. Telecommunications, Energy, Real Estate, Financial, Industrial, Tech, Bonds and Consumer. After setting up your pie sections it’s then time to choose the stocks you want to fill those sections with. In our Telecommunications section we have AT&T, Verizon and Comcast. In our Energy Section we have Dominion Energy, The Southern Co, Duke Energy, Chevron, Xcel Energy and ALLETE. We did this for each of our sections, filling them with companies that correspond to the title. After setting up your pie’s and the stocks you want to put in to them it’s time to choose allocations. This is where M1 starts to resemble a 401k, your allocations are set up in percentages as opposed to individual shares.

After your pie is set up with different sectors and the stocks that fill them it’s time to choose your allocations. You choose allocation based on percentages in your pie. For example, if you have 5 different categories in your pie you could split them up individually at 20% per section or any variation adding up to the 100%. The same goes for the breakdown in your sections. If you have AT&T and Verizon in a telecommunications sector like we do you can break it up 50/50, 60/40 or any variation that you choose. What’s unique about the way M1 does this is that the brokerage will always try to maintain that percentage. If you have telecommunications set at 20% it will always try to maintain that percentage as a whole of your portfolio. If the stocks skyrocket and the total value of your telecom sector now makes up 35% of your portfolio it won’t purchase any more of those shares until the rest of the portfolio catches up. It’s almost like a robo advisor in a sense but you dictate the allocations. I really like this in my dividend growth fund, I have my dividends set to automatically reinvest which means every time I get paid my portfolio is actively buying shares to even out my allocations. It makes it really easy to assure portfolio diversification based on value.

I’d personally recommend M1 Finance for long term portfolios such as Dividend Growth or something you aren’t planning on touching for a long time. The Pie Chart set up is unique and works great for the overall portfolio. This isn’t the platform you want to us if you’re looking to be day trading, swing trading or just purchasing individual stocks in general. The strengths of M1 are also it’s weakness’s. The inability to purchase individual stocks is a great way to help you stick to an investment plan as opposed to trading with the trends but it’s also irritating when you can’t pick up a individual stock on a whim. The other problem is that unless you get the M1 Gold package your account will only trade once a day (Between 8 to 10 AM depending on where you live). If you choose to purchase subscription for M1 it opens up a second trading window around 2 in the afternoon. This isn’t that much of a issue if you are planning to use M1 for the long term as it’s unlikely you’ll be trading multiple times a day. Overall I’d recommend using M1 for long term investing but not short term. I personally find that M1 is the best platform to use for Dividend Growth portfolios as it makes it easy to keep your allocations and diversification in check. Here at KON we’ll be giving M1 a 9/10 for long term investing and a 0/10 for the short term.

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