Financially reviewed by Patrick Flood, CFA.
With investors waking up to brokerage commissions and unnecessary fees, low-cost brokers like M1 Finance and Vanguard are soaring in popularity. Here we’ll compare the two. I wrote a separate comprehensive review of M1 Finance here if you’re interested in that.
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M1 Finance vs. Vanguard – Summary Comparison
Contents
M1 Finance vs. Vanguard – Commissions and Fees
Both M1 Finance and Vanguard offer commission-free trades and zero account fees, aside from miscellaneous fees for things like paper statements, outbound account transfers, inactivity, etc.
Vanguard just recently announced commission-free trades in January 2020. Low-cost Vanguard ETF’s are available on M1 Finance, but mutual funds are not.
Vanguard does still have a $1 fee for options contracts.
M1 Finance vs. Vanguard – Account Types
M1 Finance offers taxable, joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, and Trust accounts. They currently do not offer SIMPLE IRA, 401(k), Solo 401(k), 529, Custodial, HSA, or Non-Profit accounts.
Vanguard offers all of M1’s account types plus Solo 401(k), SIMPLE IRA, custodial, and 529.
If you need any of the latter, Vanguard would be the better choice.
M1 Finance vs. Vanguard – Investment Products
M1 Finance offers most ETF’s and individual stocks. Luckily, you can access Vanguard’s low-cost ETF’s through M1.
Vanguard offers ETF’s, individual stocks, mutual funds, and options contracts.
At this time, neither broker offers futures, forex, and crypto. They are not built for day trading.
M1 Finance vs. Vanguard – Customer Service
I’ve personally had no issues with M1’s customer service, but I’ve seen some anecdotes of people saying it can be slow. That said, I also haven’t really had the need for customer service from M1. Vanguard customer service may be a little more reliable.
M1 Finance vs. Vanguard – Margin
Margin is a collateralized loan on your investment portfolio that allows you to buy more investments, thereby leveraging your portfolio (or using that loan to refinance higher interest rate debt or whatever you want).
M1 Finance clearly wins on its margin offering and rates. Margin rates are as follows for a $100,000 margin loan:
- Vanguard – 7.00%
- M1 Finance – 3.50%
- M1 Plus – 2.00%
M1 Plus is a $125/year premium membership that gets you access to a lower margin rate as shown and a second afternoon trading window.
M1 Finance vs. Vanguard – Mobile App
M1 Finance has a sleek, intuitive, robust mobile app for both Apple iOS and Android. I find it very user-friendly. Here are some screenshots of the M1 app:
Vanguard has worked on improving their mobile app recently, but their Android app specifically is notoriously bad. Users surmise that Vanguard doesn’t care to support and update the Android app. Here are some screenshots of the Vanguard app:
M1 Finance vs. Vanguard – Interface/Usability
The Vanguard interface is a little antiquated. It may be a little more confusing for a beginner investor. Their user interface looks like this:
The interface for M1 Finance, on the other hand, is sleek, modern, extremely simple, and intuitive with its pie-based visualization. It is perfect for beginner and seasoned investors alike:
M1 Finance vs. Vanguard – Extra Features
Let’s look at the differences between M1 Finance and Vanguard for a few specific features.
Checking and Money Market Accounts
Vanguard doesn’t provide access to an integrable FDIC-insured checking account like you can get with M1 Finance via M1 Spend. With their premium M1 Plus option, you can earn interest and cash back on that checking account. On the flip side, Vanguard offers a money market fund that you can’t get with M1 Finance.
Research Tools
Neither M1 Finance nor Vanguard offer robust charting and analysis tools. Research tools from both are pretty basic – stock and ETF screeners, technical indicators, etc. Again, neither platform is built for day trading.
Expert Advice
Vanguard offers their Personal Advisor Services if your account value is over $500,000 for a fee of 0.30% of your invested balance. M1 Finance’s “Expert Pies” are available to everyone at any time. You can also use M1 to invest in a “lazy portfolio” and have it rebalance automatically.
Automatic Rebalancing
Vanguard also doesn’t employ M1’s famous “dynamic rebalancing,” which strategically allocates new deposits to maintain your portfolio’s target allocations. For example, if your portfolio has a 60/40 ratio of stocks to bonds and after 6 months your stocks position has performed worse than the bonds side, your allocation may have drifted to 50/50, requiring you to manually rebalance to get back to 60/40 with a traditional broker like Vanguard. M1 Finance does this for you, directing new deposits where necessary to keep your target allocation on track.
Fractional Shares
Vanguard also doesn’t offer fractional shares for stocks and ETF’s like M1 Finance does. Fractional shares are a feature that allows every penny to work for you. For example, if Apple stock has a price of $300 per share but you only have $100, you can’t buy any Apple with a traditional broker like Vanguard. With M1 Finance, you are still able to buy a fraction of that $300 share. Specifically, in this case, your $100 buys you precisely 1/3 of a share of Apple stock. This is especially powerful for investors who still want a diversified stock portfolio but don’t have much capital to invest. This also prevents cash from unnecessarily sitting idly in your account uninvested. Vanguard does offer fractional shares for mutual funds.
Order Control and Trading Window
Vanguard has the typical order control and all-day trading window that you’d expect from a traditional broker. M1 Finance, which is built for passive, long-term, buy-and-hold investing, does not offer dedicated order control and only uses one trading window per day. M1’s premium membership, M1 Plus, gets you access to a second, afternoon trading window.
M1 Finance vs. Vanguard – Summary and Conclusion
- Both M1 Finance and Vanguard offer zero-commission trades and low or zero fees.
- Vanguard has a few more account types than M1 Finance, notably Solo 401(k), SIMPLE IRA, custodial, and 529.
- M1 Finance offers most ETF’s and individual stocks. Vanguard offers ETF’s, individual stocks, their own mutual funds, and options contracts.
- Customer service from each should be pretty comparable. Vanguard’s may be slightly more reliable and available.
- M1 Finance offers much lower margin rates than Vanguard, and M1’s margin loan can be used for anything you want.
- Vanguard has a slightly more clunky, confusing user interface that would be more suitable for seasoned investors and traders. M1 Finance has a beautifully simple and intuitive interface.
- Both M1 and Vanguard have no minimum deposit requirement. Vanguard’s mutual funds require a $3,000 minimum investment.
- M1 Finance offers a few extra goodies that Vanguard doesn’t have: an optional integrable checking account and debit card, dynamic rebalancing, and fractional shares.
- Vanguard has the typical order control and all-day trading window that you’d expect. M1 does not offer dedicated order control and only uses one trading window per day.
- M1 is also probably better if you want to implement a “lazy portfolio” and have it rebalance automatically.
I think M1 Finance slightly edges out over Vanguard for the average retail investor due to the reasons above. M1 Finance is great for both beginner and seasoned long-term investors who want full portfolio customization, a modern, intuitive interface and mobile app, access to cheap margin, an optional integrable checking account, fractional shares, and dynamic rebalancing. M1 is not a good choice for those who need order control and, like Vanguard, is not designed for day traders.
If you definitely need access to mutual funds, options contracts, and order control, or want i401(k), custodial, SIMPLE IRA, or 529 accounts, go with Vanguard.
I’ve actually talked to people who utilize both – Vanguard for their set-and-forget retirement accounts in mutual funds, and M1 for a taxable account to access extremely cheap margin. Vanguard is also one of the brokerages that M1 Finance sees transfers from most often:
M1 Finance is actually currently offering a 1-year free trial of M1 Plus (gets you 2% margin, 1% APY and 1% cash back, and access to Smart Transfers) for users who sign up before January 31, 2021, a $30 bonus for new users who fund their account with $1,000 or more during the month of January 2021, and a transfer promotion bonus for up to $3,500 when transferring an existing account from another brokerage, as outlined below:
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational 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. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
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