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This content is for informational purposes only and is not intended to provide financial advice.
Should You Put Your Money to Work with M1 Finance or Robinhood?
Unless you inherited a million dollars you must work for a living. Now that you have some cash saved up it’s time to invest. Everyone can invest in the stock market with tools like M1 Finance and Robinhood. These two brokerages promise similar outcomes but they function in different ways. Let’s dig in and see how these two brokerages compare.
The Big Picture
Both M1 Finance and Robinhood allow people access to Wall Street without having a lot of money and without any formal training in finance. The goal is to invest your extra money in hopes of it increasing in value over time.
Companies “go public” via the stock market to raise funds. The company sells stocks, small fractions of ownership, to investors and traders. Long-term investors hold their position for a minimum of one year. Some investors plan to hold certain investments for decades.
A trader buys and sells quickly. Keep in mind if you plan to day trade you must follow pattern day trader regulations (PDT). PDT rules limit you to 3-day trades in a rolling 5-business-day period. If you have over $25,000 in your brokerage account you do not have to adhere to the PDT rules.
M1 Finance
M1 Finance was designed for passive investors that want to set up their custom portfolio strategy, automate their deposits and monitor their growth over time. M1 allows an investor to focus on asset allocation and diversification. M1 provides automation to the masses.
How to use M1 Finance
M1 is set up for investors to automate many of the order entry functions that take place in the buying and selling of stocks.
With M1 you plan your portfolio strategy first and then the platform performs the trades behind the scenes. You build your portfolio with something they refer to as pies and slices.
A pie can be custom-made or you can use one of the many preset pies. A pie can be composed of several pieces (they call them slices) or it can be just one pie.
A slice is a smaller portion of the pie and all the pies add up to be the portfolio. A slice can be a single stock or an ETF.
For example, let’s say you have 3 pies that make up your portfolio. With M1 Finance it could look like this:
1 Portfolio = 100% (with 3 pies)
Pie #1 (with 3 slices) 60% of portfolio (VTI 60%, BND 20%, VXUS 20%)
Pie #2 (with 5 slices) 20% of portfolio (MMM 10%, BEN 10%, IBM 10%, WBA 10%, SCHD 60%)
Pie #3 (with 2 slices) 20% of portfolio (VBR 75%, VOT 25%)
The Automation
The M1 Finance automation is what sets them apart from others like Robinhood. Once you set your portfolio and asset allocation you will “auto invest” any deposits or dividends. Over time one of your pies might become bigger than you wanted so M1 will automatically invest new deposits into the smaller pies to put the asset allocations back to the percentages that you choose.
You can also “rebalance” which tells the platform to sell some positions in order to add to others.
Click here to get started with M1 Finance today.
Robinhood
Robinhood was built for traders that want to take advantage of zero-commission trades. Traders are trying to profit quickly by timing their entry and exit from the market.
Robinhood’s simplicity and first-rate user interface has opened the door for many traders to learn about the markets and trade stocks using their smartphone.
Everything Robinhood comes out with is centered around ease-of-use.
Now just because Robinhood looks simple doesn’t it can’t offer some advanced features. Robinhood offers traders and investors lots of choices to invest in stocks, ETFs, Options, and more. For a full rundown click here –
Robinhood can be used for advanced day trading strategies like scalping, swing trading and following momentum both short and long.
With Robinhood and can set up recurring investments which allow you to automatically deposit funds from an account or source of your choice into a particular stock or ETF.
Robinhood also has great tutorials and articles within the “Learn” section of their app or website.
Follow this link to sign up with Robinhood today.
3 Things to Consider When Choosing M1 Finance vs Robinhood
1. Robinhood was designed for traders and M1 Finance was designed for investors – and yes, there is a difference.
2. Robinhood gives traders access to several markets that M1 Finance does not. For example, you can trade Options at Robinhood and Crypto. Note: M1 Finance plans to offer Crypto Trading soon.
3. M1 Finance allows users to open tax advantage accounts like IRAs, Roth IRAs, and others. Robinhood only offers taxable brokerage accounts.
A Final Word
When it comes down to it investors must eventually make a decision and choose a platform or app that they trust to invest with. Investing is all about putting your money to work for you instead of holding it idle. Time is money when you are trying to grow your investments with compounding and dividend growth.
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