M1 Finance is an app that I talk about a decent amount on this blog. It’s good because lately, it’s been offering great signup bonuses for new users. And while I think everyone should take advantage of the signup bonus when there’s a good one (and as I’m writing this right now, they’re offering $250 to new users who sign up with a referral link), it’s also just a good investing app.
I’ve often talked about friction when it comes to improving your finances. What exactly is friction? It’s that thing that stops you from getting started – that tiny barrier that makes you say “I’ll do this later.” Later, as often is the case, usually becomes never. This is why many of us haven’t set up that retirement account or started putting money into a 529 for our kids or done countless other things we know we should do.
Friction is the enemy that stops us in our tracks, so properly dealing with it can lead to positive results. On the money front, I think the thing that has some of the most friction is investing. As easy as investing is often made out to be, the truth is, while it should be easy, there are a lot of things about investing that are confusing or can slow you down or can outright stop you from investing altogether. Not only do you need to have money to invest, but you also have to figure out where to invest and what to invest in. And that doesn’t even include taking time to learn what investing even is (to learn about investing, I highly recommend The Simple Path to Wealth; another excellent book is The Little Book of Common Sense Investing).
Reducing friction is why I’m a big fan of roboadvisors. The good ones are free, have good investment options, and make it as easy to start investing correctly as it is to open a bank account. That’s the keyword, by the way. Correctly – because oh, boy, there are a lot of wrong ways to invest. As bad as not investing is, investing wrong can be worse (see all the people who lost it all on crypto and meme stocks).
A lot of roboadvisors have come and gone in the 7+ years I’ve been blogging. Some simply shut down. Others changed their business model so much that I can’t recommend them. But M1 Finance, through it all, has continued to stay good.
Why Do I Like M1 Finance?
The bulk of my investments are directly in Vanguard or Fidelity – I have my Solo 401k and HSA with Fidelity and my Roth IRA with Vanguard. But, when someone asks me how to invest, my first response isn’t usually to tell them to open a Fidelity or Vanguard account. Usually, I point people to M1 Finance.
Why do I do this? It’s not just because they offer signup bonuses for new customers. Even when M1 Finance didn’t have a good signup bonus, I’d still point people to M1 Finance, mainly because it made investing so easy at no additional cost.
The key with M1 Finance is their “pie” system. Instead of having to figure out specific funds or ETFs to invest in, M1 Finance has preset “pies” that you can select. Some of the pies are more complicated than they need to be, but most of them offer simple and sound investments. M1 Finance also lets you select pies that others have created for you – so when I’m referring someone to M1 Finance, I usually share my pie (which consists of just a single total stock market ETF).
For example, M1 Finance’s 90/10 portfolio (in the “Just Stocks & Bonds” section) is made up of 90% Vanguard Total World Stock Market ETF and 10% Vanguard Total Bond Market ETF. If you have a 20 or 30-year time horizon, you can pick this single pre-made pie with a few clicks of the mouse and you’re set for the next two or three decades. Each time you put money into your account, that money will automatically get invested into your pie, in the correct allocations, and will automatically get rebalanced.
When I refer people to M1 Finance, I usually send them my pie, which is just a single Vanguard Total Stock Market ETF. This is a simple, straightforward investment that will stand the test of time.
For me, M1 Finance comes with little downside because the base product is free. There are no monthly fees or commissions. Any fees you pay on the underlying funds are the same as you’d pay with any other free brokerage.
They do offer a membership model that charges monthly fees and comes with additional features, but I don’t think any of those features are necessary and for the most part, M1 Finance doesn’t seem to bother you about upgrading to the paid plan. So long as the app stays free, there’s no downside to using M1 Finance as your main investing platform.
I know it seems silly that this is what makes such a difference to me. But I’m telling you, this makes a big difference to someone who has never invested before. Being able to pick a pie and then have your money invested properly in that pie changes everything.
I’ve seen firsthand how confusing it can be when you start out investing in a traditional brokerage like Vanguard or Fidelity. I remember when I first set up my 401k back when I was 26 years old. I had no idea how to invest or even what the different investment options were. Fortunately, my work did make it so any funds were automatically invested in a 50/50 Fidelity fund, where half was invested in a Total Stock Market Fund and the other half was invested in a Total Bond Fund.
Even though that was way too conservative for me at 26, at least my money was invested. I’ve heard of far more people who set up investment accounts, diligently put money into them for years, and then discovered that they hadn’t invested in anything and that it was sitting in cash all those years.
They expected investing to be the same as putting money into a savings account. When you do that, you don’t have to think about what you do with your money once it’s in the savings account. It just automatically gets whatever interest rate the account gets. But investing doesn’t work that way.
I had a friend who once asked me about setting up a Roth IRA. He knew nothing about how investing worked and only wanted to set one up because he’d read about it online and felt he needed to start saving for retirement. I told him to open a Roth IRA at Vanguard since that’s what I had done. He promptly did that, then had no idea what to do next. There weren’t any easy default choices for someone like him who didn’t know anything and didn’t have the time or motivation to figure out all the weird names and ticker symbols and other investing lingo that many of us take for granted.
M1 Finance fixes that entire issue because you can either have someone set up your investing for you by sharing their pie or you can pick one of the default pies that M1 Finance offers. Either way, this solves this tiny little friction problem that makes people either not invest or invest incorrectly.
So that’s why I like M1 Finance and why I recommend it to people. If you already know how to invest and already have accounts in other places, then this isn’t something you need. I’d still open an account if I didn’t have one to get the easy referral bonus.
But for the vast majority of people who don’t know how investing works, this is how I’d do it. I started investing 10 years ago. Back then, roboadvisors like this didn’t really exist. Had I known about them, I think it would have changed my investing life for the better. At a minimum, it would have saved me a few years of investing incorrectly and would have motivated me to get moving on all this sooner.
Anyway, that’s just my opinion. M1 Finance is currently offering a nice referral bonus, so if you want to learn how to get that, you can check out this post: M1 Finance $250 Referral Bonus – Step-By-Step Guide.