Episode description

• M1 Finance transformed Jonathan's ideas about how simple complexity could be and has quickly become his favorite investing platform, especially for taxable accounts.
• Brian Barnes investing story begins at the age of 10 when his parents exposed him to trading stock in a brokerage account with Ameritrade. He was captivated by the notion of investing and the intellectual puzzle of how a company was doing.
• His parents laid a general foundation of financial independence and security. Once basics were covered, they placed value on putting money someplace where it could accrue value, compound, and become ownership is something valuable.
• Getting started at the tail end of the Dot Com bust, it was a great time to be buying when prices were low and companies were valued cheaply.
• Brian says there is a big difference between traders and investors. Traders speculate on price and try to make money on short-term movements. Investors buy ownership in companies, asset classes, or industries to accrue value over long periods of time.
• When you aren't making frequent investment decisions, it becomes more about viewing your portfolio in totality and making a decision on what to do with the extra money you have leftover from your paycheck.
• In the trading world, you have to go in and make the same decisions to buy the same securities over and over again, but with M1, you can make the decision once and let the software automate the process.
• With day trading, you can't just be right once, you need to be right over and over and over again, constantly timing the market perfectly. It's difficult to predict costs even when commissions are free and it's tax-inefficient.
• With an investing mindset, you want to own over long periods to accrue value and generate cash flows.
• At the age of 25, Brian realized investing platforms hadn't changed in 15 years. He looked at consumer applications work that sought to make things simpler, more intuitive, and automated wondering why there hadn't been progress in the financial services world.
• He thought it would be nice if he could tell a software platform the portfolio he wanted to own, and anytime he had money, he could throw it into the platform and it just went to work. He wanted to deploy all of the money by purchasing fractional shares so there wasn't any cash drag. And finally, incredibly low fees with no commissions.
• As M1 has expanded, it's grown from his “wouldn't it be nice” idea to other areas like borrowing and spending, allowing users to have one financial institution instead of needing to use multiple apps.
• M1's philosophy is that a great product allows you to do complex things simply. What they allow customers to do is determine what share of their portfolio they want in any given investment and then the software handles the complex and mundane administrative work.
• It used to be that you had to buy lots of 100 shares. It was a big step forward to be able to purchase odd lots of shares.
• Being able to purchase fractional shares with M1 is transformational. They do this by purchasing in whole shares and adding the leftover fractions to their own inventory account. It makes it easier for the customer to deploy more money consistently and have a diversified portfolio.
• M1 is a commission-free platform. Traditional brokerages made 10-35% of their money from commissions. Through technology development, the cost to trade is only an electronic message. Though not free, on a per-transaction basis, it can be no-cost to the user.
• M1 can make money monetizing the assets held on their platform so by being efficient, they don't need to charge transaction fees, making it a win-win arrangement.
• M1 is not good for day traders. It's suited for systematic investing in the portfolio of your choosing. Their trade windows occur twice a day and aggregate all orders on behalf of their customers once in the morning and once in the afternoon.
• While you can invest money every day through M1, a good financial habit to establish is to invest the extra cash you have leftover from your paycheck every two weeks. M1 allows for that to be automated.
• Portfolio management in M1 orients itself around a pie concept. At the highest level, the pie is 100% of your portfolio. You can then begin to divide up the pie into slices based on what percentage of your portfolio you want in specific investments. The slices can then become their own pies. It allows for a diversified portfolio, controlling risk exposure, without the risk of becoming overconcentrated.
• In M1 you can rebalance your portfolio in the next trading window with the one-click button although that method is tax-inefficient. Instead, additional contributions will automatically work to rebalance your portfolio with your pies without causing taxable events.
• With investing, taxes are going to be your biggest fees. Minimizing taxes controls costs and maximizes long-term success. With M1's dynamic rebalancing, it tries to minimize the sale of securities with tax consequences to push taxes out as far as possible and let your money have more time to compound.
• Brian is a fan of Vanguard and what they have to prioritize the individual investor. The difference between M1 and Vanguard is that you can buy Vanguard ETFs with M1, but Vanguard has a mediocre brokerage to buy other securities.
• Compared to Vanguard, M1 offers a more robust and comprehensive personal financial platform, such as a line of credit against your securities with rates as low as 2%. M1 also has a high-yield checking account earning 1% plus 1% on debit card purchases. The smart transfer tool allows you to set parameters and have money automatically move in and out of accounts accordingly.
• M1 wants to be a personal finance platform where you can manage your money holistically.
• They just launched custodial accounts which are available with the M1 Plus membership for $125 a year which has additional benefits across Invest, Borrow, and Spend. M1 is offering a promotion to get one year of M1 Plus for free.
• In the last few weeks, ChooseFI CEO Ed has been migrating assets from other platforms to M1. While Brad already has an M1 account, this conversation with Brian has helped him realize what he has been missing out on.
• Jonathan wanted to note that with the smart transfer rules, the decumulation phase can now be as easy as the accumulation phase.
• Previously, Jonathan was going to get a HELOC. When he stumbled upon M1 Borrow, he realized that it was a margin loan much in the same way that a HELOC is a loan against your home. Borrow can be a liquidity tool, giving you access to 30% of your investments as an emergency fund. It gives you an incentive to build an emergency fund and keep it invested.
• Brian says you should be able to have a line of credit against a liquid investment portfolio at really low-interest rates.
• The goal for M1 Finance as the finance super app is for people to come to M1 to manage their finances, not a component of their money, as well as provide the same level of capability that a high-price team optimizing every aspect of your finances could in a self-serve product.
• You won't find VTSAX on M1. VTSAX is a mutual fund and M1 does not have mutual funds. What it does have are ETFs which are identical versions of mutual funds. VTI is the ETF version of VTSAX on the M1 platform. M1 also has Paul Merriman pies for anyone interested in his ultimate buy and hold portfolio.
• For those in the decumulation phase, M1 has IRAs, taxable accounts, and 401Ks that may be rollover into IRAs which can be set up as smart accounts using dynamic rebalancing and withdraw money in the most tax-efficient manner possible.

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