M1 Finance

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David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

M1 Finance

Post by David Scubadiver » Tue Oct 24, 2017 1:00 pm

I am very close to choosing M1 Finance for my preferred investment platform. Their fees have dropped significantly over the course of a year -- currently they are free for $1,000 and then they charge .25% of AUM for accounts below $100,000 and .15% for $100,000 and above. I expect that the pricing will continue to evolve, especially given that someone with $99,999.99 under management pays significantly more than someone with $100,000.

It may not be very "boglehead-like" to pay .15% of AUM but it beats paying .25% at Betterment or Wealthfront, though they do not offer tax-loss harvesting, this may be viewed as a positive, or at least a wash. What they do offer are Portfolio Pies. You can chose one of their professionally selected pies or create your own. Currently, I have one Pie that is a three fund portfolio and one pie that consists of eleven individual stocks. The first pie is 75% and the second pie is 25% of my M1 Finance Portfolio.

Every time I add money, they buy in accordance with my selected allocation, working toward rebalancing. Every time I withdraw, they sell securities working toward the selected allocation. They don't automatically sell unless I remove a security from one of my pies completely. I like this way of doing business because it generates fewer taxable transactions. If I never remove a security or sell my portfolio, there are never any sales until I choose to rebalance.

And, when I do choose to sell, they will select the most tax-efficient lots automatically. Not a heavy lift for a computer but it is nice not to have to select the lots manually.

I COULD do this all on my own and pay nothing. However, I know that I won't do so. Much like I could cut my own lawn but don't even own a lawnmower.

Unlike my Schwab Intelligent Portfolio where the expense ratio for an all equity portfolio comes to 0.19%, and requires me to have 6% in cash, I can keep my expense ratio at 0.11% with VXUS (35%)/VTI (45%) and MUB(20%),and not have to keep 6% in cash. Yes, the AUM fee makes it slightly more expensive, but I feel like I am in lot more control of my investments because I am actually selecting my own investments and they invest everything down to the penny without requiring me to maintain a cash hoard.

I think I am settling down with where I wish to be. Selecting my own stocks and ETFs, controlling when I sell, but letting someone else do the balancing at the time of my choosing, and working toward my allocation every time I add to the account. I can easily see how each of my pies are doing relative to one another, and if I wish, I can make changes if the mood to tinker strikes me.

They will eventually allow for margin loans and a checking account, if that sort of thing is of any interest.

Ideally, I would prefer if Merrill Edge allowed this sort of front-facing platform while maintaining my ability to select lots, place limit orders, and sell individual stocks. But, they don't. M1 Finance provides a very slick interface and makes everything look very tidy. Sure, I can't easily see my tax lots and choose to sell a bunch of stocks that have losses, and that is kind of disappointing. On the other hand, I never received much value from micro tax loss harvesting; if one of my holdings tanks and I want to dump it, I can do that easily enough. I just can't dump half of it...it is "all or nothing" when selling an individual slice of the pie. If I lower the allocation to a particular slice by 50% it will only work toward that new allocation as I sell or buy more.

John Laurens
Posts: 253
Joined: Mon Nov 14, 2016 7:31 pm

Re: M1 Finance

Post by John Laurens » Tue Oct 24, 2017 1:12 pm

I think the benefit more than anything with robo advisors is to keep an investor from making behavioral mistakes.

I think having multiple robo accounts is a terrible idea.

Have you considered a 3 fund portfolio with tax efficient placement of funds? All this tinkering seems silly.

Regards,
John

David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: M1 Finance

Post by David Scubadiver » Tue Oct 24, 2017 2:05 pm

John Laurens wrote:
Tue Oct 24, 2017 1:12 pm
I think the benefit more than anything with robo advisors is to keep an investor from making behavioral mistakes.

I think having multiple robo accounts is a terrible idea.

Have you considered a 3 fund portfolio with tax efficient placement of funds? All this tinkering seems silly.

Regards,
John
John, the multiple robos were set up so I can see how they worked and where I wanted to wind up. I will eventually close them out, but I want to see how well they tax-loss harvest before I give up on the idea as well as decide which among them I will recommend to my spouse in the event she ever needs to manage the family's investments. Maybe I will recommend M1 for that as well.

Anywho, I LIKE investing and having a portfolio that is 75% 3 Fund portfolio (45% VTI/35% VXUS and 20% MUB) seems to be a tax efficient placement of funds. Sure, 25% includes a dozen individual stocks but that is because I believe that I may do better with that 25% than I will with the other 25%. Over time I will compare the two pies to one another and if the individuals are not outperforming, I will merge them into the 3 fund portfolio.

I would like opinions on tax free bonds though...and whether it makes more sense to have a 2 fund potfolio in the taxable account and load up the tax deferred accounts with BND and/or BNDX.

David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: M1 Finance

Post by David Scubadiver » Sat Oct 28, 2017 2:37 pm

I created an "Ideal Index" portfolio, figuring that it would give me more opportunity to re-balance than a 3 fund portfolio with only two equity positions.

Vanguard Short Term Bond Fund 30%
Vanguard FTSE Developed Markets 16%
Vanguard FTSE Emerging Markets 15%
Vanguard Small Cap Value 9%
Vanguard Value 9%
Vanguard Reit 7%
Vanguard S&P 500 7%
Vanguard Small Cap Growth 7%

Overall Expense Ratio 0.08%

The plan, to the extent I have one, is to deposit $900 a month into this portfolio.
i am doing the same with:

Vanguard Total Markets 45%
Vanguard Total International 35%
iShares NY Muni Bond Fond 20%

Overall Expense Ratio: 0.12%

The portfolios aren't quite equivalent but I am curious to see how they do against each other, at least for a while. I would like to see if the Ideal Index portfolio does in fact offer more tax loss harvesting opportunities and if so, whether I actually care about it enough to swap out these low cost funds for their equivalents.

The beauty of the platform is that I can rebalance with a "tap" or a "click" and that all dividends will be reinvested so as to move the portfolios to the chosen allocations. Basically, I don't have to think. I don't have to pause. Just keep the investments on auto pilot, like I used to do in the 90s when investing in mutual funds!

David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: M1 Finance

Post by David Scubadiver » Mon Oct 30, 2017 8:11 am

I have contacted them to request whether they might allow users to designate tax inefficient "slices" of their "pies" in taxable accounts, to their tax advantaged accounts. This would be the icing on the cake for me, allowing allocations across taxable and non-taxable accounts so that when transactions are made in either, the system works toward keeping the overall portfolio in balance.

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