Stock trading has become a popular choice for many in today’s age. But, did you know that you don’t have to start paper trading these days to get into the stock market? Stock trading has been made much more accessible in the past decade thanks to free trading platforms like M1 Finance and Robinhood.
These two platforms are well-known options in this industry, the question is which is the better choice? That’s what we’re here to help you decide. Let’s dive into this comparison of M1 Finance vs. Robinhood so you can get an in-depth look at both of these trading platforms and find out which has what you need!
M1 Finance vs. Robinhood: Introduction
About M1 Finance
M1 Finance combines automated investing with high customization that allows investors to create portfolios that are tailored to meet their specifications. It is not an advisory service. M1 Finance is somewhere between a robo-advisor and a broker.
The service does not have as many restrictions as you find with standard robo-advisor services. But it allows for automated investing. There are no trading or portfolio management fees. Additionally, there are no fees for withdrawals and deposited when it is connected to a bank account.
Robinhood is a free trading platform that offers stock, exchange-traded funds (ETFs), and options trades. It also offers crypto trading and penny stocks. Mutual funds and bonds are not a part of the investment options on Robinhood, but it does offer investors the option of signing up for an individual taxable investment account.
Robinhood became notable because it was one of the only brokers that offered commission-free trading. Web and mobile trading are both available as options.
Robinhood frequently runs promotions offering free stocks to open an account. You get one free stock for opening an account (as well as meeting other requirements) and when you refer your friends and family, you can earn a free stock for each referral.
It’s a nice extra perk to earn free stock to open up a Robinhood account, so if you’re looking to get into stock trading, try to during these promotions.
M1 Finance vs. Robinhood: How Do They Work?
M1 Finance Investment Account Features
To start an account with M1 Finance, you need a minimum balance of $100 or $500 to open a retirement account. You have a greater variety of investment accounts that are available through M1 Finance.
Individual Brokerage Accounts, Joint Brokerage Accounts, Roth IRA, Traditional IRA, SEP IRA, and trust accounts are the different account types M1 Finance offers.
You also have access to a feature called rollover concierge. Using this feature, you can roll over your existing IRA or 401k to fund your account.
Other features that M1 Finance offers include the list that’s detailed below:
Custom & Expert Pies
You have the option of creating your M1 Finance brokerage account by creating a custom pie or using one of its pr-build portfolios.
There is no limit to how many pies you can have and you also do both a custom pie and a rebuild expert pie if you wish. Up to 100 different stocks and ETFs can be held in a custom pie.
To create a custom pie on M1 Finance, you need to select and allot a percentage of your portfolio to each stock that you want to own.
For example, let’s say you want to go 25% Apple, 10% Amazon, 15% AT &T, and 50% Shell. You will automatically invest across these four stocks each time you have more than $25 in your cash balance.
This is a great feature for those who want to take a more active approach using the M1 Finance platform.
Expert pies may make more sense for passive investors. The experts have created pre-built portfolios that take out all the guesswork. Generally accepted investing methodologies are used to build these portfolios.
For long-term investors whose goals involve funding retirement, M1 Finance offers target-date funds. Users simply choose the year that they plan to retire and their preferred investing approach (conservative, moderate, or aggressive portfolio).
Based on these settings M1 Finance will change the portfolio allocations as necessary.
M1 Finance also offers access to fractional shares. Not everyone can afford to buy a share of Google or Amazon, which trade well over $2,000 for just one share.
With fractional shares, M1 Finance makes these high-cost stocks accessible to investors. M1 Finance allows its users to purchase as little as 1/10,0000th of a share.
Dividend reinvestment is also made easier with this because it cuts the time you need to wait to buy a full share.
Automated rebalancing is one of the most useful features that M1 Finance offers. It allows you to divide money in your account appropriately with stocks and ETFs based on your target allocations.
Your asset allocations will change over time. For example, you may have set your assets to be 25% Verizon, 25% Netflix, 20% Microsoft, and 30% in a certain ETF.
All asset classes will fluctuate at times, moving up or down. A week later your asset allocation could be 30% Verizon, 20% Netlfix, 25% Microsoft, and 25% in a certain ETF
Using M1 Finance, your cash balance will automatically be invested in assets that you are under on. That way, your target allocation is back to how you originally set it.
If you take money out of your account, M1 Finance will sell more of what you’re over on to bring you back to being closer to your target allocations.
You can invest in the stock market using M1 Invest. If you want to borrow money, M1 Borrow allows you to do it at a low cost. Let’s say that you need extra funds for a medical emergency or another unexpected cost.
M1 Finance allows you to borrow up to 35% of the value of your portfolio. The interest rates on the loan are lower than an unsecured loan since your own investments are being used as collateral.
If you want a checking account that integrates into your M1 Investing account then M1 Spend enables you to do just that. You also get a debit card so that you can make purchases.
The money that’s in M1 Spend is always available for you to trade stock. You don’t have to be slowed down by a three-day ACH bank transfer.
To trade stocks, all you have to do is move the funds from M1 Spend to M1 Invest. You can make stock trades the very same day.
M1 Spend is their free checking account that’s offered By M1 Finance. You also have the option of upgrading to its premium tier, M1 Plus.
If you upgrade to an M1 Plus account, you’ll pay a membership fee of $125 per year. With M1 Plus you get 1% cashback and 1% APY on your balance.
Additionally, M1 Finance offers the following perks when you sign up for M1 Plus:
- Custodial accounts
- An afternoon trading window in addition to the morning trading window
- Smart transfers
- Discounted margin loans
- Up to 4 ATM withdrawal fees imbursed monthly
- Reimbursement on international fees
- 5 debit card design options
Automation makes our lives much easier. Using this premium feature that’s offered with an M1 Plus account, you can set up rules so that your account automatically takes certain actions.
For example, you can set it up so that your cash account keeps a minimum balance and the rest of your money is moved over to invest. This makes it easier for you to trade stocks.
Robinhood Investment Account Features
Currently, Robinhood does not offer retirement accounts or custodial accounts.
You will pay margin interest if you open a margin account with Robinhood. Since you’re borrowing money to invest using margin trading, that’s why there’s a cost to it.
There are other potential fees that you may come across as well. If you decide to transfer your Robinhood account to another brokerage you will pay a $75 outgoing account transfer fee.
Domestic wire transfers are $25 and international wire transfers are $50.
Robinhood Gold is a paid subscription that gives investors access to several additional features. To get access to these premium features, it’s $5 a month.
With Robinhood Gold, you get access to margin trading which requires a margin account. Your first $1,000 is included with this service. You’ll be charged a 2.5% yearly interest on amounts that you use that go above $1,000.
Another feature that you get with Robinhood Gold is access to larger instant bank deposits.
You can also take advantage of professional research reports from Morningstar. The final feature that’s included with Robinhood Gold is level II market data that allows you to see more information on bid/ask prices. These are solid research tools for investors to use when they’re looking to glean more information on individual stocks they’re interested in.
Margin trading is not recommended for beginner investors due to the high risk that’s involved. Advanced traders who are knowledgeable with this type of investing will find Robinhood Gold provides easy access.
The Robinhood cash management account is an online bank account with also has an APY that’s above average. Any money that’s in there will earn interest.
There are 5 banks that Robinhood has partnered with to provide this service since Robinhood is not a bank. The money in this cash account is FDIC insured for up to $1.25 million.
Typically FDIC insurance is for $250,000, however since the cash management account is spread across 5 different banks, each bank offers $250,000 in coverage.
Additionally, the Robinhood cash management account includes a debit card. That means you can use it like a checking account to spend money wherever you go.
Having this account enables you to move money to your investments faster. Typically, an ACH transfer from a checking account from another bank can take as long as 5 business days.
DRIP and Fractional Shares
If you have a long-term investment strategy, you won’t have access to opening retirement accounts with Robinhood. However, long-term investors can utilize Robinhood’s DRIP and fractional shares for buy-and-hold investing.
The dividend reinvestment program (DRIP) automatically reinvests dividends that investors receive from ETFs or stocks back into the security. This feature lowers your cash drag and allows all your money to work for you.
Fractional Shares allow investors who have investment portfolios with Robinhood to buy 0.000001 shares that are rounded to the nearest penny for $1 of any stock. There are no trading fees involved with these transactions.
This is one of Robinhood’s newer investment options that allows its members to access certain IPOs using its trading platform. IPOs have typically been available to only high net worth individuals or institutions.
Using this feature, traders can access IPOs that are listed with its platform to request shares. This doesn’t guarantee that those shares will actually be purchased.
The IPO is not underwritten by Robinhood, but they do partner with the financial institution or underwriter to receive a certain allocation of shares.
Members who requested shares are then randomly selected by Robinhood to participate in the IPO.
M1 Finance vs. Robinhood: Pros and Cons
M1 Finance Pros
Beginner investors can easily start investing by setting up an automatic investing plan that fits their investing style. You can choose what you want to invest in and create a custom portfolio of individual stocks, etc. and put your account on autopilot.
And if you find this daunting, then you can choose one of their professionally created pies. Target-date funds are also included in these pre-built options which makes them a great choice for retirement investors.
M1 Finance supports both Apple iOS and Android. Users have reported favorable experiences using the app. Its app is modern, intuitive, and sleek which makes it perfect for viewing your account while on the go.
M1 Finance doesn’t offer much as far as research tools, but they have plenty of resources to help improve an investor’s knowledge and skills.
As you start investing and growing your own investments, you can read articles on subjects like the advantages and disadvantages of IRAs or why it’s important to save money on a regular basis.
In addition to these and related personal finance articles, M1 has a blog, social media, and email newsletter that help educate investors on the markets.
M1 Finance Cons
No Tax-Loss Harvesting
If you have a taxable account, tax-loss harvesting can minimize the taxes you pay. It is a standard feature that’s found offered by some of the top robo-advisors.
They do offer a feature called tax minimization that reduces your tax burden by categorizing your investments by tax effects. When you sell certain stock or ETF, it will then prioritize it to minimize your tax burden.
Access to Crypto trading
Most traditional brokerages do no have cryptocurrency trading on their platform. Plus you still get commission-free trading to buy and sell cryptocurrencies.
You have access to margin when you upgrade to Robinhood Gold for $5 a month and have a minimum balance of $2,000. This is much more accessible than M1 Finance where you must upgrade to its $125 M1 Plus membership plus have a taxable account with a minimum of $10,000.
Remember that investments involve risk, and when you buy on margin, that risk increases.
Fractional Shares and Recurring Investments
These two features that Robinhood offers pair perfectly with one another. You set up a schedule and dollar amount that you want to have automatically invested with its recurring investments feature.
Since you can buy fractional shares on Robinhood, you can have that money go towards a dollar value versus buying by share to your choice of fractional shares.
Reliability and Trustworthiness
There have been several complaints and lawsuits involving Robinhood recently that can’t be overlooked. For example, in January 2021 it restricted trading during extreme market volatility that involved heavily shorted stocks like Gamestop. Its restrictions were far more expansive than the approach other brokerages took.
M1 Finance vs. Robinhood: Head to Head
M1 Finance vs. Robinhood: Account Types
You can only open taxable accounts at this time with Robinhood. You can’t open a retirement, joining, trust, or custodial account, although they have said that they plan to expand the account types in the future.
M1 Finance gives you access to account types that include taxable, joint, traditional IRA, Roth IRA, Rollover IRA, SEP IRA, trust, and custodian accounts.
SIMPLE IRA, solo 401(k), 529, HSA, and non-profit account types aren’t offered on either of these investing platforms.
M1 Finance is better suited for investors that want to open retirement accounts. In this category, M1 Finance takes the win.
M1 Finance vs. Robinhood: Commissions and Fees
Both investment platforms do have account fees for services. For example, there are account fees for paper statements, outbound account transfers, etc. Still, there are only a few other fees that investors have to worry about on both platforms.
M1 Finance and Robinhood both offer premium services. If you sign up for M1 Plus with M1 Finance, you pay $125 annually for extra benefits like an extra daily trading window.
Robinhood Gold is $5 a month to get the benefit of deeper market data, instant deposits, and more.
Both these investment apps come in at a tie in this category.
M1 Finance vs. Robinhood: Trading Windows
Commission-free trading is a great perk that both of these competitors offer. However, you’re limited to a single daily trade window that occurs in the morning with M1 Finance.
To get access to a second-afternoon window, you need to upgrade to their M1 Plus service.
Robinhood offers real-time trading so if you want to get into day trading, they are the better investing app choice. In addition, Robinhood offers extended trading hours, 30 minutes before the investment markets open and two hours after they close.
That makes Robinhood the ideal choice for users who want more freedom to buy and sell stocks regularly. Robinhood is the winner in this category.
M1 Finance vs. Robinhood: Customer Service
Robinhood’s customer service can be reached via email or phone. However, users have reported challenges with contacting the brokerage.
They can also submit support tickets, but the turnaround time to reach a representative can take some time in some cases.
M1 Finance has many different customer service options including live chat, phone, and email. Representatives can assist you with technical problems and you can also get consultations for independent financial advice to help you put together your own portfolio.
M1 Finance vs. Robinhood: Which is Better?
Both of these apps offer users free investing which has made areas in personal finance more accessible to the mainstream community.
Active traders or individuals interested in cryptocurrency may benefit from choosing Robinhood. M1 Finance could be a better fit for those who wish for automated portfolio management and retirement investing.
The better platform ultimately depends on your unique needs and situation.