M1 Finance vs. Robinhood: Why M1 Finance is Robinhood for Smart People

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Shots fired – but I don’t care. When it comes to M1 Finance vs. Robinhood, I believe that there’s a clear choice – but obviously it depends how you’re investing and what your goals are.

A Quick Rundown on Robinhood

If you’ve stayed in tune with recent investment trends, you’ll know that Robinhood is one of the hottest investment platforms of the day, with 3 million active users.

Robinhood is known for making investing easy and mobile – most people use it on their phones – while promoting high frequency day trading through notifications and a gamified UI.

If you want to buy and sell options, go for it. And if you want to lose money, there’s no better investment strategy I can think of, short of withdrawing your savings from your bank and throwing them straight into the fire. Even as day trading surges during the pandemic, it’s obvious that the vast majority – 90+% – lose money.

So let’s recap – Robinhood encourages you to day trade, which is statistically shown to lose you money. While it’s a great platform for its ease of use (I had Hannah use it as her first foray into investing in the stock market), it’s also dangerous for the same reasons.

M1 Finance is Robinhood For Smart People

One of the common problems casual investors run into is managing complexity. You can only do so much research and buy so many individual stocks. That’s why ETFs have become so popular – you choose an overall investment strategy (for example, investing in a composite of the S&P500) and purchase the ETF that executes that strategy for you. You only have to buy one asset and then the ETF will allocate your funds appropriately.

M1 Finance has taken the idea of automated diversification to the next level. It relies on the idea of ‘pies’ where you can set up a portfolio allocation by % (25% Amazon, 25% Apple, 25% Google, etc.) and then when you make a new deposit M1 Finance will distribute those funds automatically against your target allocations. If you want to get even more complicated, you can create a pie of pies – so you can have 25% in your tech portfolio, 25% in bonds, whatever.

The beauty of this approach is that if one of your assets has a tremendous week – say Amazon is now 30% of your portfolio – M1 will automatically rebalance your portfolio on your next deposit by purchasing shares of the lower valued assets, in line with the classic motto ‘Buy Low, Sell High’.

This approach also allows you to take advantage of one of the most powerful investment concepts, dollar cost averaging. Dollar cost averaging basically says that rather than invest all of your capital at one point in time, you spread it over days or weeks in order to neutralize point in time volatility. By setting up easy weekly or even daily automatic deposits, I know that M1 Finance is automatically investing my money against the weakest part of my portfolio and I don’t have to worry about peaks and valleys in the market.

The icing on the cake – M1 Finance will also reinvest any dividends the same way it would on a deposit.

Oh- and did I mention that M1 Finance only allows you to trade once per day? No more day trading!

If you can’t tell already, I’m pretty obsessed with it and recommend it to anyone looking to take a long term, serious approach to investing. If you’re interested in learning more, here’s my referral link. When it comes to M1 Finance vs. Robinhood, I believe the choice is clear, but if you’re more interested in day trading, then I’d go with Robinhood.


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