M1 Finance vs. Betterment: Which One is Right For You?

Bob HaegeleBy: Bob Haegele

November 10, 2020November 10, 2020

Both M1 Finance and Betterment are leaders in the growing low-cost investing space. Each platform allows investors to grow their wealth without massive fees.


Both make the list of the best robo-advisors.


If that is the case, the question becomes: which one is best?


It can seem like a complex decision. However, a few basic questions can help you decide.


M1 Finance and Betterment are both excellent, but which one you should use depends upon your needs.


Each specializes in a different type of investing:



In this post, we'll cover how each tool is better for specific types of investing. This should help you understand how they differ and which one is better for your needs.

M1 Finance Overview: DIY Investing

M1 Finance is a flexible investing platform that allows you to build your own portfolio - or choose from a long list of pre-built portfolios. Its pie-based approach makes it easy to build your portfolio and even easier to rebalance.


There are no trade commissions, no minimum balance, and no monthly fee. A basic account is also free to use, though M1 Plus has a $125/year fee.


M1 Finance does have an initial minimum deposit of $100, but there are no minimums after that.


M1 allows users to add stocks, bonds, or even exchange-traded funds (ETFs) to their investment pie. All of the usual stocks, bonds, and ETFs are available on the platform.


You won't find mutual funds on this platform, however.


Investments on M1's platform are SIPC-insured up to $500,000. And if you sign up for M1 Plus, you'll get a debt card that is FDIC-insured up to $250,000.


M1 Finance also offers M1 Plus - a subscription for the price of $125/year. For that fee, you get 1% APY checking, 1% cash back on debit card purchases, and 2% loans via M1 Borrow.


See our full M1 Finance review for more information about M1 Plus.


M1 Finance At-a-Glance:

Fees

Free or $125/year (M1 Plus)

Minimum Balance

$0

Account Types

Traditional IRA, Roth IRA, Rollover IRA, Brokerage, Checking

Best For

DIY Investors

While M1 Finance allows users to create customizable portfolios, it is best for buy-and-hold investors.


That is because a basic account only has one trading window (M1 Plus has two). That means that if you put in any kind of order, whether buy or sell, it won't go through until the next trade window.


M1 Finance is best for buy-and-hold investors who prefer to build their own portfolio from scratch.


M1 Finance Pros


  • Pie-based investing. This investment style makes it easy to build custom portfolios and keep each investment in line with its target. You can add or remove slices in the fly, then quickly balance your portfolio with a few clicks. If you want the greatest level of customization, this is the right choice.
  • Low fees. There are no platform fees at all for a basic account. If you opt for M1 Plus, there is a $125/year fee.
  • Easy rebalancing. M1 has one-click rebalancing for its portfolios. In addition, it uses fractional shares to evenly distribute money deposited.



M1 Finance Cons


  • No tax-loss harvesting. One of Betterment's flagship features, tax-loss harvesting, helps avoid capital gains by selling securities at a loss. However, this strategy isn't very noticeable when you're first starting out.
  • No financial advisors available. Although M1 is best-suited to intermediate and advanced investors who don't need a lot of hand-holding, it can be nice to have that option if you need it. Unfortunately, M1 doesn't offer access to advisors.

Betterment Overview: Passive Investing

Betterment was the first robo-advisor on the market and remains one of the best.


Betterment launched in 2008 and was officially available to the public starting in 2010. Since then, it has changed the investment landscape.

?

What is a Robo-Advisor?

A robo-advisor is an tool that mostly or entirely manages investments using an algorithm.

Before robo-advisors, some passive DIY investors would put all their money in a total-market index fund and call it a day.


The problem? That leaves out several segments, including growth funds, bonds, and international stocks.


Sure, DIY investors could invest in those, too, but then rebalancing becomes a necessity. With a robo-advisor like Betterment, all of that is done for you.


Betterment At-a-Glance:

Fees

0.25% (Digital), 0.40% (Premium)

Minimum Balance

$0

Account Types

Traditional IRA, Roth IRA, SEP IRA, Rollover IRA, Brokerage, Saving, Checking

Best For

Passive Investors

Initially, it might seem that the biggest difference between Betterment and M1 Finance is that Betterment doesn't have a free option. While that is true, remember that Betterment requires no ongoing maintenance.


While M1 Finance can be mostly automated, you'll still have to check in quarterly, at the very least.


But Betterment automatically rebalances investment accounts, meaning you can realistically set it up so you never even have to check it. At the same time, it allows you to adjust your stock/bond asset allocation to match your risk tolerance.


Betterment also offers a savings account to help you earn a high APY on your cash.


Betterment Pros


  • Passive investing. One of the best things about Betterment is that it's passive. That means you can completely put your investing strategy on autopilot.
  • Pre-selected investments. Depending on who you ask, this can be either a pro or a con. But if you're new to investing and just want to grow your money, this is a nice feature. You may be able to get a slightly better return if you hand-pick your investments, but you can't go wrong with Betterment's investment portfolios.
  • Tax-loss harvesting. Still one of Betterment's best features, tax-loss harvesting allows you to save money on taxes. And it's all handled by the algorithm.
  • Socially-responsible investing. Betterment now has three distinct socially-responsible portfolios, helping you invest according to your values.


Betterment Cons


  • No custom portfolios. Again, this can be a pro or a con depending on who you ask. However, Betterment doesn't let you select your own investments. You can only choose what percentage of stocks vs. bonds your portfolio should contain.
  • Management fees. You get a whole lot of value from Betterment's 0.25% management fee. But if you want the best return possible, you may do slightly better with a DIY portfolio.


M1 Finance vs. Betterment: Comparison

Fees

0.25% management fee

Minimum Investment

$0

Promo
Fees

$0 or $125/year (M1 Plus)

Minimum Investment

$0

Promo
  • M1 Finance: DIY investing.
  • Betterment: Passive investing.

As you can see, the biggest difference between M1 Finance and Betterment is the investing style.


M1 Finance is best for those who want to build a custom portfolio that is easy to manage. There are no commission fees and a basic account has no monthly or annual costs, either. However, M1 doesn't offer financial advisors or tax-loss harvesting.


Betterment is best for those who want hands-off investing without having to worry about maintaining their portfolio. In addition, Betterment investors don't pick the specific stock/bonds in their portfolios, making it ideal for beginner investors. Betterment offers access to certified financial planners for those who want financial advice from a human. The services costs of $199 or $299 per session.


Account Types


  • M1 Finance: IRA, rollover IRA, brokerage (taxable account), checking
  • Betterment: IRA, rollover IRA, brokerage (taxable account), cash, checking

M1 Finance offers most of the basic types of accounts. The one thing M1 Finance has that Betterment doesn't is a kind of loan capability called M1 Borrow. However, it doesn't work quite like your typical loan.


Instead, it allows you to borrow up to 35% of your portfolio's value. For that privilege, you're charged a 3.5% base interest rate, or 2% for M1 Plus members.


Betterment offers a a full range of accounts. The main difference from M1 is that Betterment offers a high-yield cash account, something M1 currently doesn't offer.


Betterment's cash account has a high yield, giving you a place to store cash you don't want to invest in the market. It brings things full circle by offering an online checking account.


Fees


  • M1 Finance: No fee for a basic account; $125/year for M1 Plus
  • Betterment: 0.25% (Digital), 0.40% (Premium)

As you can see, M1 Finance and Betterment have different fee structures.


M1 Finance offers a premium service with an annual fee. If you only have a basic account, you can use M1 without incurring any service fees at all - something that isn't possible with Betterment.


Betterment charges all its users a small percentage. That percentage is 0.25% for Digital members or 0.40% for Premium members.


Most investors should start with Digital. This plan gives you all of Betterment's flagship functionality.


The key difference with Premium is that it gives you access to financial advisors, but it requires a $100,000 minimum balance.


And that is not to mention the higher fee. Generally speaking, only investors with sizable portfolios will benefit from Betterment's Premium plan. For everyone else, you will pay the 0.25% management fee.


Investment Classes


  • M1 Finance: Stocks, Bonds, ETFs
  • Betterment: ETFs

This is the area where M1 has a big advantage. When you invest with Betterment, your money automatically goes into its selection of ETFs.


On the other hand, M1 Finance is more of a sandbox and allows investors to hand-pick individual stocks, bonds, and ETFs. It also has pre-built portfolios called expert pies.


M1's expert pies are built by M1's team of financial experts. They are constructed using Modern Portfolio Theory (MPT).


And the pies include portfolios for different risk levels, target-date funds, responsible investing, and more.


If you really want flexibility in your portfolio, M1 is the clear winner.


Minimum Balances


  • M1 Finance: IRA, rollover IRA, brokerage
  • Betterment: IRA, rollover IRA, brokerage, cash, checking

Neither M1 Finance nor Betterment require a minimum balance. That makes it easy to get started.


The only caveat here is that M1 Finance does require an initial deposit of $100 ($500 for retirement accounts). However, after that $100, there are no minimums of any kind.


Mobile Apps


Both Betterment and M1 Finance have fully-functional mobile apps for both Apple and Android. Managing your investments on the go is no issue for either investment platform.

M1 Finance vs. Betterment: Which One is Right For You?

M1 Finance and Betterment are both great ways to invest. Both have fee structures that won't eat away at your returns and don't require minimum balances.


That being said, they are best for different investing styles.


  • M1 Finance is ideal for DIY investors who want the lowest fees possible and want to be able to manage their own portfolio.
  • Betterment is ideal for those who simply want their money to grow without all the work of managing a portfolio. Its automatic tax-loss harvesting and access to financial advisors are also helpful.

While both platforms have their strengths, deciding which one is best for you is about determining which style of investing you prefer.

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About the Author:

Bob Haegele is a personal finance writer, entrepreneur, and dog walker. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow, Modest Money, and Blooming Wealth. You can also find him contributing to popular websites such as Millennial Money, Club Thrifty, and The Good Men Project. Bob has a passion for investing and growing his net worth and wants to help others do the same.

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