Episode Guide

Episode Summary:

Investigating the evolution of investing platforms, this discussion highlights M1 Finance and its innovative approach to personal finance management. Brian Barnes, founder of M1 Finance, shares his early introduction to investing and how it shaped the inception of the platform aimed at simplifying investment processes. The episode explores themes surrounding systematic investing, automation, and the significant advantages of developing a diversified portfolio while lowering costs\u2014especially through fractional shares. Listeners learn about M1's unique pie structure for portfolio management, which facilitates both easy diversification and automated rebalancing. The conversation showcases how M1 Finance serves individuals looking to maximize their investments while reducing their tax burden, ultimately making finance more accessible for those at all income levels. Becoming the 'finance super app', M1 is transforming how individuals engage with their finances, whether in accumulation or decumulation phases.

Episode Timestamps

ChooseFI Podcast Episode Show Notes: Featuring Brian Barnes of M1 Finance

Episode Summary: In this episode, hosts Jonathan Mendonsa and Brad Barrett engage with Brian Barnes, founder of M1 Finance, discussing how this platform is revolutionizing investing with user-friendly automation and efficient management. Brian shares his journey into investing, the development of features like fractional shares and automated portfolio management using "pies," and emphasizes the importance of a long-term investment mindset. Listeners will gain insights on tax efficiency, borrowing against investments, and integrating investing with overall personal finance.

Key Topics Discussed:

Introduction to M1 Finance
- Overview of the episode and introduction of Brian Barnes.
Brian's Early Investment Journey
- Brian shares his early experiences with investing from a young age.
Understanding Investment Strategies
- Discusses the difference between trading and long-term investing.
The Concept of 'Pies' in Investing
- Explanation of M1’s pie-based portfolio management system.
Tax Efficiency and Portfolio Management
- How M1 Finance minimizes taxable events and manages portfolios tax-efficiently.
How to Use M1's Borrowing Features
- Discussion on how users can borrow against their investments with M1 Finance.
Future Directions for M1 Finance
- Brian discusses upcoming features and the vision for M1 as a comprehensive finance platform.

Key Takeaways:

Investing Mindset: Adopting a long-term investment strategy rather than engaging in day trading can significantly simplify the investing process.
Automation of Rules: Consider setting up automated rules to manage investments more efficiently.
Dynamic Rebalancing: Utilize M1's dynamic rebalancing feature to minimize tax liabilities while maintaining desired asset allocations.
Using 'Pies': M1's pie approach allows users to maintain a diversified portfolio while effortlessly managing contributions.
Borrowing Features: M1 allows users to borrow against their investments at low interest rates, providing a flexible liquidity option.

Actionable Takeaways:

Explore how M1 Finance can help you invest systematically every two weeks.
Set up an M1 Finance account to start using automated investment strategies.

Key Quotes:

"Investing systematically in your chosen portfolio efficiently!"
"Ensure you have liquidity while staying informed about your finances!"
"Automate your financial rules for easier management!"

Related Resources:

Speaker Highlights:

Brian Barnes: Founder of M1 Finance, transforming investing processes with innovative automation.
Brad Barrett: Co-host emphasizing the integration of technology in personal finance.

Discussion Questions:

What are the advantages of automated investing through platforms like M1 Finance?
How can understanding tax efficiencies impact investment decisions?
In what ways can M1 Finance's structures encourage better financial discipline?

Action Items:

Review your current investment habits and identify where automation can improve efficiency.

Podcast Outro: "You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time."

Revolutionizing Investing with M1 Finance: Insights and Strategies

Investing in the stock market can be a daunting task, especially for beginners. However, with the introduction of automated investing platforms like M1 Finance, managing your investments has never been easier. This article explores key insights from M1 Finance's founder Brian Barnes, emphasizing actionable strategies that can help you optimize your investing process and work towards financial independence.

Understanding M1 Finance

M1 Finance is an innovative investing platform that combines user-friendly automation with efficient management to empower both novice and experienced investors. By utilizing features like fractional shares, automated portfolio management, and dynamic rebalancing, M1 Finance simplifies investing while minimizing costs.

Features of M1 Finance

Fractional Shares: You can invest with any dollar amount, ensuring that every dollar is put to work without leaving you with cash idling in your account.
Automated Investing: Set investment rules that automatically manage your portfolio, allowing you to stick to your investment strategy without constant oversight.
Tax Efficiency: M1 Finance employs dynamic rebalancing, focusing on minimizing taxable events while maximizing your investment returns.

Key Strategies for Successful Investing

Invest Systematically

Establishing a regular investment routine is essential for building wealth over time. M1 Finance allows you to set recurring deposits—typically aligning with your payday—making it easier to adhere to your investment plan. By automating the transfer of cash to your investment account, you remove the temptation to spend that money.

Action Item: Set up an automated deposit to your M1 Finance account every pay period to ensure consistent investing.

Control Your Allocation

One of the major advantages of using M1 Finance is its “pie” structure for portfolio management. This feature lets you determine the percentage of your assets allocated to different investments or sectors, creating a diversified portfolio tailored to your risk tolerance.

Recommendation: When setting up your portfolio, be mindful of how much of your total investment should be allocated to each segment. Regularly review and adjust these allocations based on market performance and your changing financial goals.

Utilize Dynamic Rebalancing

With M1 Finance's dynamic rebalancing feature, you can maintain your desired asset allocation without the hassle of making frequent trades. When new money is added to your account, M1 Finance automatically directs those funds into underweighted slices of your pie, effectively managing your portfolio to stay compliant with your investment goals.

Action Item: Regularly assess your investment performance and adjust your target allocations within the M1 Finance app to align with your long-term goals.

Understand Tax Implications

Tax liabilities can significantly impact your investment returns. It's crucial to minimize these liabilities wherever possible. M1 Finance's structure helps reduce the frequency of taxable events through its dynamic rebalancing approach. Additionally, the platform's ability to prioritize long-term capital gains can increase your after-tax returns.

Tip: Consider using tax-advantaged accounts such as IRAs through M1 Finance to further reduce your tax burden.

Leverage Borrowing Features

M1 Finance offers a unique feature that allows users to borrow against their investments. This feature can be powerful as it enables you to access funds without selling your investments, preserving your portfolio's growth potential. Unlike traditional loans, M1 Finance's borrowing rates are relatively low, giving you access to liquidity when needed.

Recommendation: If you require liquidity, explore utilizing the M1 Finance borrowing feature instead of conventional loans, thereby maintaining the investment potential of your portfolio.

Enhance Financial Discipline with Smart Rules

M1 Finance allows users to set up smart transfer rules that automate the management of their finances. You can configure rules to funnel excess cash into your investments, ensuring that you’re always investing your available funds rather than letting them sit idle.

Action Item: Create smart rules in your M1 Finance account to automatically reinvest excess cash from your checking account into your portfolio.

Conclusion

Investing with M1 Finance provides a modern and efficient way to build wealth over time. By systematically investing, controlling your allocations, utilizing dynamic rebalancing, and understanding tax implications, you can robustly manage your finances and work towards achieving financial independence. Embrace the automation features of M1 Finance to keep your investing strategy straightforward and effective—such that you focus more on your broader financial goals while lessening the stress of day-to-day management.

If you are looking for a way to simplify your investing journey, consider setting up an M1 Finance account and take advantage of these innovative tools today. As the landscape of personal finance continues to evolve, integrating these strategies will help guide you on the path to financial success.

Brian Barnes, founder of M1 Finance

Watch

https://youtu.be/UPMUoJx8j6E

Listen

[fusebox_track_player url="https://dts.podtrac.com/redirect.mp3/chtbl.com/track/DD815/adbarker.com/stream/FUtw8akGsdUcxjeJU7HY5o1V/traffic.libsyn.com/secure/choosefi/292_Brian_Barnes_.mp3" social_email="true" ]

Read

Website: M1 Finance

What You'll Get Out Of Today's Show

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 over concentrated.
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.

[elementor-template id="53891"]

Resources Mentioned In Today's Conversation

M1 Finance-Completely Free Automated Investing!

If You Want To Support ChooseFI:

Earn $1,000 in cashback with ChooseFI's 3-card credit card strategy.
Share FI by sending a friend ChooseFI: Your Blueprint to Financial Independence.

The Complexity in Simplicity at M1 | Brian Barnes
Episode 292