Investments

Why Wealthfront

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

Wealthfront was an early robo-advisor and continues to be a frontrunner in the industry because of its cheap management costs and great value-added services.

M1 Finance is a more recent financial service, but it offers valuable extras such as free checking and portfolio margin borrowing in addition to its amazing lack of commissions and administration costs.

Obviously, M1 Finance and Wealthfront are not interchangeable. Individual investors who like to make their own stock and fund selections will like M1 Finance’s self-directed interface and generous account starting incentive. Wealthfront provides a more comprehensive suite of resources for investors seeking financial advice and assistance, yet this still falls short of what is available from human advisors.

Having trouble deciding which to pick? This summary will help you compare the features of several platforms to choose the one that best meets your requirements.

Important Characteristics

Even while both M1 Finance and Betterment provide automatic investment platforms and spending accounts for little to no cost, these two services are vastly different.

Self-directed investors will like M1 Finance’s low-cost margin borrowing tool and cash management capabilities, while Betterment’s superb cash management account and access to human financial advisors are hard to beat.

Bonus for Opening an Account

When compared to other brokerages, M1 Finance’s sign-up bonus is among the finest available. Wealthfront does not currently provide an account opening incentive, however this may change in the future.

M1 Finance’s Account Opening Bonus

Get up to $2,500 in extra cash when you open a new M1 Finance account and transfer funds within 60 days. Bonuses at M1 Finance are doled out depending on the following transfer minimums:

  • Transferring $100,000 to $250,000 will earn a bonus of $250.
  • $500 incentive for transferring a $250,001-to-$500,000 account.
  • Transferring $500,001 to $1,000,000 will earn a bonus of $1,000.
  • Transfer an account worth more than $1,001 and receive a $2,500 bonus.

In order to make a transfer from one kind of M1 Finance account to another, the two account types must be identical. This promotion is not applicable to 401(k) rollovers, direct ACH payments, or wire transfers.

After the funds have been transferred, your bonus will be deposited into your account within 90 days.

Account Types Available

Both M1 Finance and Wealthfront provide access to a variety of investment accounts, including traditional brokerage, tax-deferred savings, interest-bearing cash, and portfolio lines of credit, which allow customers to take out loans based on the value of their taxable investment holdings if they meet certain criteria.

M1 Finance’s Available Account Types

The M1 Invest account is M1 Finance’s investment vehicle. M1 Spend is the company’s checking account. And for investors with taxable balances of $10,000 or more, it offers a portfolio line of credit known as M1 Borrow.

  • Investor M1. When you open an account with M1 Invest, you have the option of choosing between a taxable account and a tax-deferred account (traditional IRAs, Roth IRAs, and SEP IRAs). There are no trading fees, administrative costs, or required minimum balances for any M1 Invest account type. M1 Invest provides more than eighty prebuilt template portfolios for passive investors, each of which is tailored to meet a unique set of investment objectives while also taking into account the unique risk tolerances of its users. To further diversify their holdings, passive investors might utilize sector or industry “pie slices.” Active investors have the option of using M1 Invest’s manual stock and fund selection to get a truly personalized investment experience.
  • Funds Allocated to Measure 1 Expenditures. The M1 Spend account is a Visa debit card-based cash account that may be used at millions of locations globally. There is no low opening or maintenance balance for the M1 Spend account.
  • M1 Get a Loan. At M1 Borrow, you may borrow up to 35% of the value of your taxable investment portfolio at low interest rates if your portfolio is worth at least $10,000. The money from an M1 Borrow can be used for anything lawful, such as reducing high-interest debt, paying for critical costs, or raising portfolio leverage (though this latter option carries a high risk). There is no set repayment timetable for draws, however interest will be charged on any unpaid principal sum.

Available Account Types at Wealthfront

In addition to low minimum balances ($500) for both taxable and tax-advantaged investment accounts, Wealthfront now provides a cash management account with variable returns and checking-like features, as well as a low cost portfolio line of credit.

  • Save and Invest Accounts. Wealthfront provides both taxable and tax-advantaged (IRA) investment accounts curated from low-cost ETF baskets according to your risk tolerance and long-term investment goals. Wealthfront does tax-loss harvesting, in which accounts are rebalanced on a regular basis to take advantage of the tax savings by selling down-in-value stocks. Wealthfront’s advising fee is 0.25% of AUM annually, regardless of account type or amount. The average annual cost ratio for a component fund is below.15%.
  • Put money into a bank account. The Cash Account from Wealthfront is a checking account that comes equipped with a number of useful features, such as the ability to get direct deposits from your job up to two days early, a debit card that can be used at millions of different stores, and mobile check deposit. The current yield is 2.55 percent yearly compounded (APY), although this might alter according to market conditions.
  • Portfolio Term Loan. Borrow up to 30% of your portfolio’s worth at low interest rates (currently 3.70%) and with no fixed payback schedule with Wealthfront’s Portfolio Line of Credit, a margin lending option. If you fail to make your loan payments when they fall due, the assets in your portfolio will be liquidated to pay off the debt. To open a margin loan, your trading account must have a minimum value of $25,000. Wealthfront’s portfolio lines of credit are just as flexible as M1 Borrow loans, and may be used for anything you choose.

Pricing and Plans

Both of M1 Finance’s programs are unique and offer their own set of benefits and price structures. Wealthfront offers a single package that incorporates all of the platform’s features and capabilities for all customers, however those without a minimum $25,000 in assets will not be eligible for the portfolio line of credit.

M1 Finance’s Plans and Pricing

The two strategies offered by M1 Finance are:

  • M1 Standard, commonly known as the “Basic Account,” costs $125 per year.
  • M1 Plus, a premium account, costs $125 per year.

Apart from the fees paid to third parties by the money stored in M1 Invest accounts and the interest paid on M1 Borrow credit lines, M1 Standard does not incur any out-of-pocket expenses. The most important aspects and measures of M1 Standard are:

  • No return on M1 Spend balances
  • No cash refunds on M1 Spend transactions
  • Monthly refund of one ATM charge
  • A daily restriction of $10,000 for ACH transfers for M1 Spend
  • A 3.5% base rate of interest applies to the M1 Borrow.
  • One morning trading window for M1 Invest transactions, during which all open trade orders are executed.

The following are exclusive to M1 Plus members:

  • Cash holdings in M1 Spend accounts yield 1.30 percent.
  • Receive 1% back on all M1 Spend purchases
  • We will repay your ATM fees four times a month.
  • M1 Expend is limited to a maximum of $50,000 in ACH transfers each day.
  • Borrowing funds from the M1 Market incurs a 2% interest rate basis.
  • M1 Invest has two trading sessions every day.

Advice and Financial Planning

Wealthfront does not serve as a go-between for its users and human financial counselors; nevertheless, it does host a variety of planning modules that produce at least some degree of basic human-generated assistance and makes a lot of financial information available to do-it-yourself planners.

M1 Finance does not provide its customers any form of financial planning or advice at this time.

Financial Planning and Advice Services from Wealthfront

Wealthfront provides comprehensive guidance and handy tools addressing various significant life issues, in addition to standalone financial planning modules focusing on typical life scenarios.

  • Modules for Economic Preparation. When it comes to saving for retirement, purchasing a home, sending a child to college, or taking a gap year to travel, Wealthfront has you covered with standalone financial planning courses. Each calls for you to reveal details about your objectives, strategies, resources, and monetary standing. By the conclusion, you’ll have a clear idea of what has to be done to reach your objective. People who aren’t sure where to start with their finances can take advantage of Wealthfront’s general financial planning assistance.
  • DIY Organizers’ Handbooks and Planning Apps. Users who want to chart their own routes can take use of Wealthfront’s in-depth guidelines and free financial planning tool. Both the homebuying process and employee equity matters (such getting ready for your company’s IPO or cashing in on stock options) are covered in these manuals. Simply said, the software is a high-tech calculator that can be used to estimate and forecast your wealth under different conditions.

You Should Consider Investing with Wealthfront If

  • You Need Assistance With Financial Arranging. Wealthfront does not employ financial advisors who directly interact with customers and does not act as a broker between customers and third-party advisors, but it does provide customers with access to basic financial planning advice, in-depth guides for do-it-yourselfers, and a practical planning app. This extra value is not something M1 Finance tries to imitate.
  • A high-yield savings account isn’t worth the added cost to you right now. Wealthfront’s greatest returns on cash accounts are available without an expensive plan change, unlike M1 Finance. The exceptional return on Cash Reserve holdings in Wealthfront accounts is the same for all account holders.

Both Are Great If

  • You Seek to Take a Backseat in the Investment Process. Passive investors can find services that meet their needs at both Wealthfront and M1 Finance. Wealthfront is a true robo-advisor, whereas M1 Finance offers over 80 template portfolios and many more semi-customized “pie slices.”
  • You Wish to Establish a Qualified Retirement Plan. If you’re an investor who’s thinking forward, you have the option of opening an IRA with either M1 Finance or Wealthfront.
  • You Must Have Ready Access to Funds. The Wealthfront Cash Account combines the convenience of a checking account with the benefits of cash management, while the M1 Spend Checking Account is without a doubt one of the best checking accounts available. Both are suitable for regular financial management.
  • You’re Looking to Take a Loan Against Your Investment Portfolio. Portfolio lines of credit are available at low interest rates from both M1 Finance and Wealthfront. The entry-level balance requirement for M1 Finance is only $10,000. Many investors will be able to meet Wealthfront’s $25,000 minimum balance requirement for a portfolio line of credit. Neither requires substantial security as a home equity loan or line of credit does, and yet they are both quite adaptable.

Bottom Line

M1 Finance and Wealthfront are two examples of robo-advisors due to their use of advanced investment algorithms, dynamic rebalancing, and combination of prebuilt portfolios and low-cost ETFs.

Both platforms’ histories, though, go deeper. They are both good options for customers seeking a no-hassle online bank because they don’t charge for cash management or checking and provide cheap rates on portfolio lines of credit.

Given the option for self-directed trading, M1 Finance is also a good choice for active investors (albeit not day traders).

Wealthfront isn’t a replacement for a human financial counselor, but it may be helpful for investors who want to stay out of the financial decision-making process and have no immediate plans to do so.

That is to say, there are enough distinctions between M1 Finance and Wealthfront to make a decision between them more clearer. There is probably one that is more suited to your demands than the other. Exactly which is which? You decide, I guess.

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