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M1 Finance vs. Wealthfront: Automation or Hybrid Approach?

No fees or commissions

No account minimums

Simple investing with M1 Pies

Free access to financial planners

529 plans

Automatically invest extra cash

M1 Finance and Wealthfront are both excellent investing tools. Wealthfront is a pure robo-advisor, whereas M1 Finance that gives more control to those who want it.

If you are wondering which one is “better,” the truth is that it depends upon how you prefer to invest. Some investors feel it’s necessary to have more control while others simply want their money to grow.

Your investing goals, risk tolerance, and investment knowledge all play a role in which is the right approach for you. Nevertheless, we’ll take a look at each investment platform and see which one better fits your goals.

M1 Finance Overview

M1 Finance is a hybrid investment platform that launched in 2015. Based in Chicago, Illinois, M1 lets you manage your own investment or select from a variety of pre-built portfolios. That flexibility has made the platform attractive to all types of investors.

Adding new investments to your portfolio is easy, too. It only takes a few clicks, and once you specify the investment’s target allocation, you’ll be all set.

M1 Finance Details

Monthly Fees

$0

Minimum Account Balance

$0

Management Fees

$0-$125 per year

Account Types

Individual and joint brokerage accounts, Roth IRA, SEP IRA, and Traditional IRA, plus trust accounts and custodial accounts

Investment Type

Stocks and exchange-traded funds (ETFs)

The key to M1 is its investment pies which allow you to manage your portfolio in slices. If any of your slices outperforms the others, you can visually see that and rebalance them in two ways:

One-click rebalancing: with a single click, M1 will sell some investments and invest in others to bring your portfolio in balance.

Deposit balancing: each of your slices has a target allocation, and if some are smaller than others, M1 will prioritize buying those investments first any time you add cash to your portfolio. 

With M1, you can either build your own portfolio from scratch or choose from one of its expert pies. The latter allows you to buy target-date funds, conservative or aggressive strategies, as well responsible investing.

If you do decide to go with an expert pie, you aren’t bound to that investment mix. In other words, you can customize them, too. Thus, expert pies are a great way to get started for those who are new to investing. As you learn more, you can customize your pies or even create your own.

M1 also offers a checking account and a portfolio line of credit. The portfolio line of credit lets you borrow up to 35% of your portfolio’s balance when you have at least $5,000 invested. Lower interested rates are offered to M1 Plus members.

M1 Finance Fees

One of the best things about M1 Finance is there are no fees to use a basic account. You might incur some small fees if you invest in exchange-traded funds (ETFs) as those come with expense ratios. However, those fees are charged by the funds themselves, not by M1.

M1 does give you the option to upgrade your account to M1 Plus for $125/year. If you upgrade to M1 Plus, you gain access to two daily trade windows, smart transfers, and some features for M1’s complementary accounts like M1 Spend.

There is also an inactivity fee of $20 for accounts with a balance up to $20 for 90 plus days. In most cases, though M1 charges no fees, and you can easily use it without paying monthly/annual fees.


M1 Finance Pros

No fees or commissions

No account minimums

Simple investing with M1 Pies

M1 Finance Cons

Lack of investment options

No human financial advisors

No tax-loss harvesting

Wealthfront Overview

Need a little more guidance with your investing? If so, Wealthfront could be the ideal platform. Founded in 2008, Wealthfront ws one of the first robo-advisors available to consumers.

Wealthfront offers robo-advisor services as well as financial planning tools. It aims to help you with your whole financial picture.

While robo-advisors seem like a dime a dozen these days, Wealthfront has some unique features that make it stand out. For example, it offers 529 plans and real estate—options you (still) often don’t have with robo-advisors.

Wealthfront Details

Minimum Account Balance

$0

Management Fees

0.25%

Account Types

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking, 529 plans

Investment Type

Exchange-Traded Funds (ETFs)

Wealthfront, like Betterment, comes with a 0.25 management fee. Where it differs from Betterment, though, is its $500 minimum deposit (Betterment has no minimum).

In the grand scheme of things, $500 isn’t much. You will need much more than that to retire, and investing less than $500 won’t earn much in terms of investment returns. Still, it’s a minor annoyance and a barrier that could put some investors off.

Nevertheless, Wealthfront does have some features that could make it ideal for some investors. It has automated financial planning and the Path tool that helps you see the bigger picture of your finances. Hence if you want to take advantage of financial planning features without paying an expensive advisor, Wealthfront could be worth a look.

It stands out in a few other ways, too. With a $25,000 balance, it gives you access to a portfolio line of credit. It also has real estate ETFs as available investments and the Risk Parity portfolio which aims for better returns by expanding its investment options.

Wealthfront Fees

Wealthfront has no monthly fees, but there is a 0.25% management fee for investment accounts. 529 plans have a fee ranging from 0.42% to 0.46%.

Expense ratios are low on Wealthfront funds with an average of 0.08%.

Wealthfront Pros

Free financial planner access

Automatically invest extra cash

529 plans

Wealthfront Cons

No fractional shares

$500 minimum investment

Limited customization

M1 Finance vs. Wealthfront: Comparison

Feature

M1 Finance

Wealthfront

Min. Investment

$0

$500

Management Fees

0.25% (Digital); 0.40% (Premium)

0.25%; 0.42%-0.46% (529 Plans)

Avg. ETF Expense Ratio

0.01% and up

0.08% (0.11% for Risk Parity Portfolio) 

Account Types

Individual and joint brokerage accounts, Roth IRA, SEP IRA, and Traditional IRA, Trust accounts, and Custodial accounts

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking, 529 plans

Cash Reserve APY

None (1% with M1 Plus)

0.35%

Financial Advisor Fee

Not offered

Free

Best For

Customizable Portfolios

Financial Planning

M1 Finance vs. Wealthfront: Which one is Right For You?

As we have seen in this comparison, M1 Finance and Wealthfront both have some great features that make them stand out. However, which one is right for you depends on your needs.

M1 Finance is best for those who want absolute flexibility in their portfolio while also having the option of investments picked by M1’s experts. In addition, if you want a no-fee investment platform with no minimum investments, M1 is a great option.

M1 also has other products that may appeal to you such as M1 Spend and M1 Borrow. They can be helpful if you prefer to do all of your banking and investing in one place.

Wealthfront is better for those who are looking for some guidance, not just in terms of investing but with their finances as a whole. Its automated financial planning, Path tool, plus free access to human financial advisors ensures you won’t be lost when trying to manage your money.

The biggest strike against Wealthfront is its $500 minimum deposit. M1 Finance actually has a $100 initial minimum deposit, but you aren’t required to maintain that balance at all times.

While both Wealthfront and M1 Finance have their benefits, we recommend M1 Finance for its flexibility, expert pies, and its much lower minimum to get started. To learn more about M1 and create your portfolio, follow our M1 Finance link.

The post M1 Finance vs. Wealthfront: Automation or Hybrid Approach? appeared first on Modest Money.

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