If you are interested in getting started with M1 Finance click here. If you use this link you will get $10 free!

 

Caveat – Index Funds Still win

For those who are new to investing or want a hands-off approach, low-cost index funds are the best way to invest in the market.  There is no need to pay a financial advisor your hard-earned money to do something that you can do yourself.  Almost all of our money is in Vanguard.  Individual stocks only account for about 1% of our total portfolio. Everything else is in low-cost index funds, for the most part.  For those who need some introductions to index investing, I recommend the following two books:

For expats:

This is from Andrew Hallam, the same author of Millionaire Teacher. It provides a step-by-step guide to how to invest, regardless of what your nationality is.

For those living in the US

This is the holy grail for investing smartly and gives a step-by-step guide on how to invest and to take control of your finances.  A very easy read for beginners.  

 

I have a problem

I love to gamble and tinker.

When we are home in Michigan, we inevitably end up at the Casino in Detroit at some point in our holiday.  I also love fantasy football (even Draftkings) and March Madness.  Last summer, I put some money into Cryptocurrencies (a gamble not an investment!). I’ve looked into investing in Coffee Plantations in Panama (Lindsey talked me out of it)

Sometimes investing in index funds is just plain boring!  Once you have determined your asset allocation, it pretty much is:

The problem is that I like to tinker.  I like to be a bit more hands-on.  And I like to gamble.

That is why I do have a small part of our portfolio in individual stocks.

 

The Problem with Buying Individual Stocks

There are two major problems with buying individual stock:

1. Fees

2. Diversification

 

Fees

When I was 18, I started an account with Sharebuilder.  I didn’t have much invested (I was 18 after all) but that was my first foray into investing in the stock market.  The thing that stood out to me then, and still does now, is the amount of fees that you pay per trade.  I want to say that when I first started it was $9.99 per trade.  It is currently at $4.99 per trade but that is still quite a bit of money in fees.  If I am buying a relatively little amount of stock it is not really worth my while.

If you look at most online brokerages (Scottrade, E*Trade, TD Ameritrade, etc), there will be some kind of fee for stock purchases.

About a year ago, I heard about Robinhood.  This was an app (now also with a desktop version) that allows you to trade for free. (They generate interest with the little bits of cash you have in your account and charge people for options trading)

It was kinda cool because I got a free stock when I signed up, and I get a free stock for referring people to Robinhood, but it is still not an optimal way to invest because it lacks flexibility

Diversification

One of the biggest drawbacks to buying individual stocks in the lack of diversification.  Let’s say, for example, that I like Amazon as a company and want to invest my money to own a piece of it.  The current price of Amazon is around $1700/share.  That is a lot of money to be tied up in a single piece of stock.  This holds true for many stocks. (Tesla is $300).

If I am only want to invest a small portion of money in individual stocks, this becomes quite problematic.  The obvious way to get around that is to own a mutual fund, which is a basket of lots of different stocks, but that lacks the flexibility to allow me to choose my own stocks.

Enter M1 Finance

A couple of weeks ago, I started to look into a new company called M1 Finance.  M1 Finance seems to solve the two problems that every investor faces when trying to buy into the market.

M1 Finance has no fees.  That means that you can trade for free!  M1 Finance makes money by charging people interest for those who buy on margin. (Never do this!)

M1 Finance also allows you to buy fractional shares.  This means that you don’t ever have to buy a full share of stock, nless you want to!

 

They even have a pretty cool app!

How does it work?

M1 Finance works when you create a Pie (that is their term, it is like a basket of stocks) Each Pie can have up to 100 slices (stocks, ETFs, or even another Pie)

Here is a look at my portfolio:

As you can see, my portfolio is currently made up of two Pies.  One called Dividend and the other named Innovation. I am also able to set my allocation of the two Pies at 60/40.

Let’s take a look inside one of the Pies:

 

My dividend Pie consists of 27 stocks that are known to produce High Dividend yields.  Within each Pie, I can allocate the percentage that each piece takes up. Thus, I have fractional shares in some companies.

Here is a look at my Innovation pie. I tried to mimic the ARK Invest Disruptive Innovation ETFs.

 

 

Here you can see the fractional shares at work.  Even though Amazon is around $1700/share, I only own $78.49 of Amazon currently.

Low Buy-In

The great part about M1 Finance is that it only takes $100 to start to invest.  Also, anytime your cash balance goes above $10 (either through a new contribution or a dividend) it reinvests your money back into the Pies based on your allocation.  This Robo-investing makes it so simple to do!

Interested?

If you are interested in getting started with M1 Finance click here. If you use this link you will get $10 free!