Financially reviewed by Patrick Flood, CFA.
M1 Finance is extremely popular among dividend investors. Here I'm sharing what I believe to be the best high-dividend pie for M1 Finance dividend income investors.
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I would definitely suggest you read my preliminary discussion before blindly investing in this pie to make sure it matches your strategy. That said, I hate when recipe websites tell a long story before putting the actual recipe at the very bottom. So if you're in a hurry, you can click here to skip to the pie.
Contents
Introduction
M1 Finance is extremely popular among dividend income investors, and rightfully so, with its intuitive interface, sleek mobile app, stock and fund screeners, zero fees, fractional shares, cheap margin rates, and automatic rebalancing. To be clear, I'm not a dividend investor, but I recognize that many investors, especially those in the FIRE movement (Financial Independence Retire Early), use dividends as regular income and thus attempt to ratchet up their portfolio's dividend yield.
Unfortunately, for beginner investors interested in dividends, oftentimes this entails simply screening for the highest-yield stocks and ETF's and throwing them in a pie, ignoring things like fees, AUM, liquidity, and most importantly, what that fund's selection methodology or underlying index is. I always encourage people to focus more on asset selection and asset allocation than on chasing high yield per se. I would suggest assembling a dividend focus that still employs diversification across geographies and asset types to decrease portfolio risk; that's what I tried to do here.
Methodology and Discussion
In constructing the best dividend pie for M1 Finance, I specifically focused on the following:
- Global diversification.
- Low fees.
- Sufficient AUM and liquidity.
- Exposure to multiple equity factors and styles.
- Diversification across asset types.
- 80/20 ratio of stocks to fixed income.
- Inflation protection.
- No individual stock picking.
- Potential for healthy dividend payments and simultaneous capital appreciation.
Note that with this dividend pie, you'll have little to no exposure to Growth stocks. This could be good or bad going forward in regards to capital appreciation. If the Value premium still exists (I believe it does), Value is currently the “cheapest” it's ever been, making it potentially poised for a comeback. Value has beaten Growth historically, though Growth has crushed Value over the past decade largely due to Big Tech's stellar performance. For that reason, you may opt to use this pie as a smaller piece inside your portfolio rather than as your entire portfolio, or incorporate it into a “lazy portfolio.”
In terms of equity factors, we know that dividend investing on the whole is largely rooted in Value, and that the dividend payment itself is not responsible for a stock's performance. Specifically, high-yield funds like VYM and VYMI, for example, have more factor loading on Value, while dividend growth funds like VIG and VIGI have more loading on Quality. I've included all 4 of those funds, and more, to diversify the pie's factor exposure. The pie has consistent, positive loading on all 5 of the Fama-French factors in the 5-Factor Model (Beta, Size, Value, Profitability, and Investment), as well as both fixed income risk premia – term and credit.
Several of these funds employ some form of earnings screen to weed out potentially volatile, unstable companies. Because of that, the yield of the pie as a whole may indeed be lower than your target yield or the yield of your current high-dividend strategy. For example, a pure yield chaser usually might not include VIG or VIGI in their high-dividend pie since they have a comparatively lower yield. I would argue their inclusion should bode better for stability, lower volatility, and greater capital appreciation and risk-adjusted return over the long term than chasing the highest yield per se, which has historically been an indicator of potentially unstable companies.
As an aside, for those looking for income and considering covered call funds like QYLD, RYLD, NUSI, DIVO, etc., don't do it!
Why Not M1's Dividend Expert Pies?
M1 Finance already has some Expert Pies focused on dividends, so why use mine instead?
Their “Bank Balance Sheet” pie is comprised of 70% mortgage-backed securities, 17% intermediate-term treasury bonds, and 13% municipal bonds. I don't want a bond portfolio weighted so heavily to MBS, we already have some treasury bonds (of which long-term will offer more protection), and municipal bonds primarily only provide a tax savings for high income earners. MBS and munis are also more correlated to the market than the treasury bonds that I'm proposing. In short, no thanks.
M1's “Domestic Dividend” Expert Pie is almost entirely VIG, which I've included in mine. The other 2 ETF's are high-expense-ratio small- and mid-cap funds from WisdomTree. I'm proposing some small- and mid-cap dividend exposure via DGRO from iShares. We also get a little bit from VIG.
Moreover, the Domestic Dividend pie is also just a dividend-oriented pie and is not necessarily a high-yield pie. Their “Global Dividend” Expert Pie simply adds some very-high-expense-ratio international dividend funds. I'm advocating for IDLV below as a low-ER international ETF, as well as Vanguard's low-cost offerings of VYMI, VIGI, and VNQI.
The “Domestic Dividend” and “Global Dividend” pies also have no allocation to fixed income.
My M1 Finance Dividend Pie
I constructed this dividend pie for M1 Finance with the following ETF's:
- SCHD – Schwab US Dividend Equity ETF – Tracks the Dow Jones U.S. Dividend 100 Index.
- HDV – iShares Core High Dividend ETF – Tracks the Morningstar Dividend Yield Focus Index.
- SPYD – SPDR® S&P 500 High Dividend ETF – Tracks the S&P 500 High Dividend Index.
- VYM – Vanguard High Dividend Yield ETF – Tracks the performance of the FTSE® High Dividend Yield Index. Excludes REITs.
- VYMI – Vanguard International High Dividend Yield ETF – Tracks the FTSE® All-World ex US High Dividend Yield Index. Excludes REITs.
- VNQ – Vanguard Real Estate ETF – diversification benefit from the low correlation of REITs to the stock market.
- VNQI – diversification benefit from the low correlation of international REITs to both the US and ex-US stock markets.
- IDLV – Invesco S&P International Developed Low Volatility ETF – International exposure to low volatility dividend payers at a lower expense ratio than most international equity ETF's.
- VIG – Vanguard Dividend Appreciation ETF – companies with at least 10 consecutive years of an increasing dividend payment.
- DGRO – iShares Core Dividend Growth ETF – companies with at least 5 consecutive years of an increasing dividend payment. More inclusive than VIG; able to capture some small- and mid-cap exposure.
- VIGI – Vanguard International Dividend Appreciation ETF – international companies with at least 10 consecutive years of an increasing dividend payment.
- SCHP – Schwab U.S. TIPS ETF – Tracks the Bloomberg Barclays U.S. Treasury Inflation-Linked Bond Index. Offers inflation protection. Average maturity of 8 years.
- USHY – iShares Broad USD High Yield Corporate Bond ETF – broad exposure to high yield corporate bonds. Average maturity of 5.5 years.
- EDV – Vanguard Extended Duration Treasury ETF – Tracks the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index – Offers protection for stock crashes. Average maturity of 25 years. Interest from treasury bonds is tax-free at state and local levels.
Allocations are as follows:
- 15% SCHD
- 5% HDV
- 5% SPYD
- 10% VYM
- 10% VYMI
- 10% VNQ
- 5% VNQI
- 5% IDLV
- 5% VIG
- 5% DGRO
- 5% VIGI
- 10% SCHP
- 5% USHY
- 5% EDV
You can add this dividend pie to your M1 Finance portfolio by clicking this link. Enjoy.
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What drives your dividend strategy? Do you use any of these funds in your portfolio? Let me know in the comments.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.
Wow I just stumbled on this portfolio and I love it! I imported it into M1 and will use it as my 13% low volatility portfolio income producer. Sort of an aggressive bond fund. Roth 55% VOO, 32% AVUV, 13% John’s dividend portfolio. Boom. I got what I wanted. I thought about BND or EDV stand alone, but this is more diversified and has more potential for some capital appreciation. Thanks again Mr. Williamson! Still also considering replacing VOO with AVGE but not yet.
I see for every US vanguard fund, you have its international equivalent. I just read about the international version of SCHD called SCHY. Is that one worth considering for this portfolio?
Possibly. Thanks for the suggestion.
Thanks so much for the great content, John! I’m interested to know since you said dividend investing isn’t quite your cup of tea, would you consider producing some content on your specific style and some of the stocks/funds/ETFs you DO invest in?
Thanks, Jim! I detailed my investing strategy here – basically global indexing with a small cap value tilt.
Hi John,
I enjoy your content, thank you.
With the possibility of several interest rate increases during the remainder 2022, do you still feel comfortable with EDV in this Dividend Pie given the ETF’s extended duration?
Thanks, Jay! Yes.
Hi, thanks for sharing your pie. I tested it out over the past year to see if its something That may work for me long term or something I can build off of. Overall it does well, but there’s some near 20-25% losses in EDV and VNQI. Yes, they are only 5% slices but is there any benefit to keeping them as opposed to redistributing those shares out to the rest of the pie.
Hi. Great site!
What is your thought on ETO (Tax-Advantaged Global Dividend Opportunities Fund) for Income portfolio?
Haven’t looked at it.
A methodological question–When you calculate CAGR and other measures for an investment portfolio, what do you do with dividend payments by companies or interest payments on bonds?
Included/reinvested.
Re-posting because it looks like the first comment didn’t work.
Hey! love this list and I was wondering if you could offer any advice. I like the idea of income/dividend investing.. However I’m about 20 years from my retiring window. would you change this list at all? I did take your previous comments advice and added some “growth” etfs like VT and BNDW at %5 allocation.
No. But if you’re 20 years out from needing income, why would you be investing for income?
Why do you feel the need to have so many funds and why not just have the percentages equal or why did you choose the allocations the way you did? Thanks, Kevin
Factor loading and specific target exposure. Already explained that.
I like your M1 pie very much, and agree that M1’s expert pies don’t seem to be very ‘expert’.
I’m currently invested at M1 with a 4 pie portfolio.
1. A 40% core dividend pie similar to yours, but without bonds.
2. A 30% rotational, risk adjusted pie that alternates between a small number of positions (to include TLT) depending on 30 day performance. Fractional shares makes this pie very easy to adjust.
3. A 20% high income, high risk pie comprised mostly of closed end funds.
4. And a 10% growth pie of index funds.
I got this strategy via Seeking Alpha (minus the growth pie), and replaced his core pie of so-called safe stocks with some of your picks, since I don’t want to have to babysit individual stocks.
Question. Does your basket of funds need to be monitored closely? Or just occasional rebalancing.
Thanks for the good selection and write-up.
Thanks for the comment, Roger. To answer your question, just occasional rebalancing.
I’m 19 and I started investing into my Roth IRA last week I have VTI 60% VGT 20% VUG 15% and VXUS 5% but I want to start investing in my taxable account is this pie good for longer term holding 25-30 year horizon?
Hey Steve. I can’t provide personalized advice. I’d encourage you to assess your personal risk tolerance like I mentioned in this post and consider a lazy portfolio that matches that. Sorry I couldn’t be more specific. Also remember the marker (VTI) is already heavily concentrated in large cap growth (VUG) and specifically tech (VGT).
Wow thanks for the quick reply, John. I was supposed to meet with Edward Jones for the second time in my small town and pay 1.3% but I changed my mind. I just want a fairly straightforward somewhat conservative pie like maybe (40/60) . Could I use that one alone that you suggested along with my “conservative” IRA and nothing else or should I choose one of those lazy portfolios?
Really appreciate your time and this website.
Side note; would this be an alternative to investing in the 11 sectors or should I add that type along with yours to my portfolio?
Also when you invest in all the 11 sectors, is that a complete pie- 100%. I’m kinda new to this but I think I’m a quick learner.
This dividend pie is specifically for those seeking to use dividends as regular income. It sounds like that may not fit your needs. This pie is also missing growth stocks. Something like 40/60 VT/BNDW might suit you – global stocks and global bonds, as simple as it gets and fully diversified across all sectors, geographies, and styles. No need to break down into sector funds.
I should have mentioned I’m 65 and I’m using M1 now. I have 5% of my money in a ira. Started it late) It’s maxed out till the end of the year..
Thanks
I see these holdings have had amazing gains, some really good except I think the last two in the list. How could I make this pie more of a 50/50 or 40/50 percent stock?. Am I correct this is 80% stocks it doesn’t seem too risky to me but I’m not an expert. Thanks for your time.
Mark
Mark, you could do that by increasing the allocation to treasuries (EDV) and TIPS (SCHP) and decreasing the bond duration. If it were me, I’d do about 25% VGIT (intermediate treasuries; ditch EDV) and 25% SCHP (interm. TIPS). Yes, the one you see is 80/20.
I’m a little confused about time horizons and bonds. I’ve read your discussion on the Ginger Ale page, but it didn’t sink in. My horizon is 10 years, so should I be in long or intermediate treasuries?
Thanks for sharing your deep background in investing.
Intermediate
Thank you. I know the answer should have been obvious.. It’s just that I don’t understand yet how bond etfs work, how or when they pay out within a bundled etf given the durations.
No prob! Usually nothing is obvious in the world of investing.
Love this website. I would be curious as to your thoughts on this. link
Thanks, Scott! Sounds awful to me. Here’s why.
Hey John. Im absolutely new to this. Started yesterday on M1 and using your Pie.
As a newbie is there anything i should be doing with this?
As far as rebalancing goes, can u elaborate more than just pressing the rebalance button? Thank u
Frankly, if you don’t know what you’re buying and what it’s for, you shouldn’t be buying it. Rebalancing is just getting the portfolio back to its target allocations after they drift, which is done by literally pressing the rebalance button.
do you think that this pie is currently overvalued? would it be best to wait for the next crash before lump summing into it? looking at the m1 finance chart for the last 5 years shows that it remains around $100 until very recent.
One could argue the market as a whole is “overvalued,” but the valuation spread between Growth and Value is also as large as it’s ever been, suggesting Value may be due for a comeback.
Also, no, the data says you probably should never sit on cash.
Thanks for asking. Quick question – your returns seem to be right on point with the pre-built portfilio for the Global Dividend. It has a 73.57% 5Y return while yours as a 30.50% 5Y return with a smaller expense ratio.
73% vs a 30% is a pretty big different. Would love to hear your thoughts to see if I’m missing something here. I currently have the Global Div setup but love your perspective. Thank you
Bonds.
This is great! Sorry if I missed it but what was the return for this portfolio in 2020 and for Q4 2020?
Hey Gretchen. Clicking on the pie link will show you the historical returns.
Awesome pie, Already started using and investing into it. Thank you so much!
Thanks! Glad you like it!
Hey John – just found your website, it’s AMAZING!
Quick question – do you have an ultra low risk pie made for someone to invest their rainy day funds in?
I understand the safety net / rainy day funds should really be in a savings account, but curious maybe if you’ve come across or have made a pie essentially with the same amount of risk as a high yield savings account (~0% risk), but with marginally better returns, ~ >3% or so?
Drew, thanks for the kind words and happy holidays! Really glad you’re finding the content useful.
I’m actually a fan of investing one’s emergency fund, in the right circumstances. This should be exactly what you’re looking for: Why, Where, & How To Invest Your Emergency Fund To Beat Inflation
You’re the BEST, thank you sir!
Anytime!
How much percentage growth do you expect from this pie?
Impossible to know the future, but I’d guess roughly market returns.
Do you generally leave this Dividend Pie alone or do you find yourself adding different funds and taking some out every now and again?
Hey Keith. I generally leave it alone but I try to be on the lookout for any changes in expense ratios or changes in the underlying index being tracked that might make one fund objectively superior to another, in which case I’d probably make that swap.
Is this portfolio still good today? I’m 40 years old and am just now starting out investing. There are so many portfolio options out there I just don’t know which to go with. This one seems pretty good. Does it also have decent growth as well as dividend payouts? Would you need to have a high capital with this portfolio to even make the dividend payouts worth it? Thanks
Hey Brandon. If you’re just starting out, you’re probably not going to be investing to use dividends as income, which is what this pie is for. I’d say assess your risk tolerance and time horizon and figure out an asset allocation that fits your needs, and then choose a lazy portfolio accordingly. Can’t go wrong with something like the Bogleheads 3 Fund.
A little PFFD ( 5 percent) would round this out.
Never really seen the point of preferreds, especially at fees higher than that of “normal” security funds. They’re sort of in between stocks and bonds, and I’ve seen no compelling evidence that holding them provides any advantage over a mix of regular stocks and regular bonds.
Would adding this dividend portfolio to the all weather portfolio ruin it’s purpose or would it still be all weather safe ?
Probably depends on the allocations. But you’d be diluting each, so the strategy for each sort of goes out the window. This dividend pie is already well-diversified with healthy allocations to REITs, bonds, and TIPS, so it could be considered “all weather” in that sense.
bro you’re the truth ! … literlly been searching for this type of content all day ! all weather blog was great too !
Thanks! Glad you liked it!
Great post love it. very educational..
I currently have VYM and VIG in my Dividend Portfolio Roth Ira.
Where would you keep the REITs on a Taxable account or a retirement account if want to have access of the dividends payment?
Thanks Alex!
If you’re looking to use the REIT dividends as current income, obviously you’d want to have it in your taxable account if you’re younger than 60. If not, put them in a tax-advantaged retirement account since they’re relatively tax-inefficient.