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M1 Finance vs Betterment | Best Robo Advisor For 2020?


– So in this video today we
are going to be comparing the two robo-investing platforms out there known as Betterment, and M1 Finance. And at the end of this
video, if you guys do decide that you want to sign up for an account with either Betterment or M1 Finance, I am affiliated with both of them, which means if you do
decide to use my links in the description, at no
additional cost to you, I earn a small commission in the process. It is certainly not required, but it is very much appreciated as it’s a way to give back to me for putting a video like this together. And the one other thing I wanna mention, M1 Finance is my number
one pick here for beginners in terms of a free investing platform, but it is a little bit confusing
to get started with it. So I ended up putting together a completely free
30-minute video tutorial, teaching you how to use the
M1 Finance investing app, that is also linked up down
in the description below if you do decide that
you want to pursue that and learn more about this platform. But that being said, right off the bat, one of the biggest differences between Betterment and
M1 Finance is the fact that Betterment does charge
a small fee for the service while M1 Finance is 100% free. Now M1 Finance does make
money, they’re not a charity. And there’s a couple
ways they’re making money on the back end. For example, they have their
M1 Finance checking account and debit card that has an annual fee. They also make money from the cash held
within brokerage accounts as far as interest goes, and they also make money
from directing order flow. So those things are kind of confusing, not something we’re gonna
get into in this video, but just understand they are making money but just in some slightly different ways. Betterment, the primary
way they’re making money is charging a small annual
asset management fee to customers, which is
0.25% for most people, for the Betterment digital account. Or if you are a higher net worth investor and you have over $100,000 with them, they offer Betterment Premium which gives you access to a
team of financial advisors, basically, at any point in
time you can reach out to them and that has an annual asset
management fee of 0.4%. Now, when you compare that to a traditional financial advisor who usually charges a 1% fee, Betterment is still very inexpensive for that type of money management. Another key difference here is the minimum amount
of money to get started. So with Betterment, it is a $0 minimum, you could literally open up an account with 20 bucks if you wanted to. Whereas with M1 Finance,
they have a $100 minimum for your traditional brokerage account, and a $500 minimum for
their retirement account. You can do retirement accounts with both Betterment and M1 Finance. You may find a greater selection of account types with Betterment. For example, like trust accounts, I think that Betterment offers those, you don’t find those with M1 Finance. Another key difference here
is that with Betterment, they are building you a custom portfolio based on your investing needs. So when you go on to betterment website and you start investing, you’re gonna fill out a questionnaire where you talk about where
you are at in your life. How much money do you have,
what are your investing goals, and based on all of that, Betterment is going to build
a custom tailored portfolio for you, consisting of stocks and bonds and ETFs, exchange traded funds. There’s no individual
stocks with Betterment, it’s only going to be
passive ETF investing, and they’re gonna build
that portfolio for you. With M1 Finance, you can follow
a do it yourself approach or a portfolio based approach. They give both of those options there. If you wanna pick your stocks, and you wanna pick the
ETFs you’re investing in, you can do that through the platform and build your own portfolio from scratch. Or if you wanna let them do
all that hard work for you, they offer over 30 different
expert built portfolios which again are going
to be completely free, that means M1 Finance is
not charging you for that. The only difference being those are more
one-size-fits-all portfolios, and they’re not gonna be built specifically for your investing needs. Another big difference here is that Betterment offers a feature called tax loss harvesting. Now that in and of itself is
a pretty confusing subject, I’m not gonna go crazy into detail. But essentially what they’re able to do is they’re able to sell an investment and buy almost the
identical type of investment to recognize like an artificial tax loss to cut down on your tax
bill at the end of the year by recognizing a capital loss. And that is actually a way
that betterment has been able to justify that fee that
they’re charging customers ’cause they’re actually
saving you money on taxes through this feature
called tax loss harvesting. And that’s not something that
is offered by M1 Finance. So that becomes more important as you’re investing more and more money. So if you are somebody who’s
looking to put let’s say 10,000 or 20 grand into an account like this, you really wanna read up on
this tax loss harvesting feature and kind of begin to understand how much money is that really saving you and is that making Betterment
a more cost-effective choice. Another difference here is that, again, you can buy individual
stocks on M1 Finance, you will not find that with Betterment, you will only find ETFs. So Betterment is a 100% passive approach, you don’t do anything. You don’t tell them what
you wanna invest in, you don’t pick ETFs, you literally just fill
out this questionnaire, and then you give them
your initial deposit, and then you continue to deposit
money on a regular basis. And other than that,
you don’t do anything, they’re gonna reallocate and rebalance that portfolio for you and handle everything else. With M1 Finance, you can follow a passive or active approach. If you wanna passively invest in some of their Expert Pies
or portfolios, you can do so. Or if you wanna be more
active with your selection and pick your stocks and
your ETFs, you can do that with the Custom Pies
option with this brokerage. Another difference here is that Betterment offers a
option for your cash reserve. So Betterment has something called Betterment Everyday cash reserve. And that is specifically
meant for the cash that you’re not looking to invest. Now, the APY of this account
changes with the market rate. I believe, as of making
this video, it’s 2.04% APY, which is actually significantly higher than some of the competitors
like Ally Bank, for example. So it’s actually a very
good online savings account. And the good news is,
you don’t need to use Betterment for your investments in order to put your savings with them. So you can keep your cash with Betterment in this online savings account without being an investor with
them if you wanna do that. Unfortunately, at this time, M1 Finance does not have any type of
product for your cash savings. So that is one area where
Betterment is stronger. But again, you could have
your cash with Betterment and your investments with M1 Finance if you wanted to do that. So overall, this is what I would say about Betterment and M1 Finance. If you’re looking for a
100% hands-off approach, where you literally don’t
have to do anything, you don’t have to look at portfolios, you don’t have to rebalance or worry about anything like that. That is exactly what Betterment
is for, it’s 100% hands-off, they do all of the guidance, and it’s completely beginner friendly. It is the simplest platform
out there in my opinion to begin investing with. Now on the other hand, if you know a little bit
more than the average Joe, or you wanna learn a little bit, and again, my free training on M1 Finance shows you basically
everything you need to know to get started, then this is
going to be a good platform for somebody who wants to be
a little bit more involved, where they’re okay with selecting
a portfolio to invest in or they wanna follow that
do it yourself approach and pick the stocks and ETFs to invest in. It’s also good for people who are looking for individual stock exposure, but it’s not good for trading stocks. So if you’re looking to
trade in and out of stocks on a weekly or daily basis, it is not a platform for active traders, it is a better platform for people who are long-term investors. So overall, Betterment is
more beginner friendly, 100% hands off approach. And M1 Finance is good for a more beginner to
intermediate investor who wants to be a little
bit more hands-on. But anyways guys that’s
gonna wrap up this video. That’s the differences between
Betterment and M1 Finance. If you guys are looking to
sign up for either one of them, all those resources are down
in the description below. I certainly do appreciate
your use of those links. And I also have that free
30-minute video training walking you through step-by-step
how to use M1 Finance. But thanks so much for
watching this video. I hope you enjoyed it, and I
will see you in the next one.

Reynold King

2 Replies to “M1 Finance vs Betterment | Best Robo Advisor For 2020?”

  1. Now we need M1 Finance vs Wealthfront. Also, a comparison between Wealthfront's "Cash" Account to M1's Checking account.

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