Fintech News

Robo Battle: M1 vs. Betterment

By Jeremy Biberdorf

Posted on March 31, 2021

And we are not talking BattleBots, the Discovery Channel’s hit show featuring homemade robots duking it out in a makeshift “arena”. M1 Finance and Betterment are both standouts in the field of robo-advisors.

Robo-advisors provide algorithm-driven financial planning that require little hands-on involvement. As you can guess, they are a great way for investors without much prior knowledge of the market to, well, start investing. Robo-advisors are also great for those on a budget.

It’s a dismal prospect: you put your hard-earned money in a traditional saving’s account, hoping for exponential growth, only to learn that the national US average is 0.04% APY. The only way to ensure that your savings actually grow is by investing in a market, and that can be daunting.

This article will breakdown these two giants of the growing robo-advisor industry, and highlight the benefits and drawbacks of each. As you will see, M1 Finance and Betterment each have a particular flavor, or investment ethos.

M1 Finance

The great thing about M1 Finance is that it allows for both passive and active investing. Founded in 2015 by Brian Barnes, the company’s vision from the outset was to create something new. The novel thing about M1 Finance is its focus on “pie investing”.

Like the phrase suggests, “pie investing” uses pie charts in order to illustrate users’ investment allocations. Not only is this system easy to operate, but it gives members a visual representation of their investments that is easier to grasp than raw numbers.

In addition, these pies are easily manipulated. You can choose from predetermined, “expert” pies and change the slices, adding stocks, bonds, or exchange-traded funds (ETFs) in order to make it suit your exact needs. Or you can simply leave them as is: the choice is yours.

Perks of M1 Finance

A basic account has virtually no monthly or management fees. There is only an initial minimum deposit of $100
It’s DIY ethos gives you a sense of control: while they have great predetermined portfolios for their members to choose from, the high level of customization will appeal to those looking to put their own fingerprint on things
M1 Finance features one-click rebalancing and uses fractional shares to evenly distribute your deposited funds
It’s basic graphic user-interface, coupled with the intelligibility of pie charts, makes M1 Finance a great platform for kids to learn about investing

Where does M1 Finance tend to falter? Though it is highly customizable and affordable, there are a few things that might not sit well with some investors.

Cons of M1 Finance

There is no tax-loss harvesting. For more experienced investors, this is somewhat crucial, as tax-loss harvesting helps you avoid capital gains by selling securities at a loss.
Lack of financial advisors. This may not matter to most, but if you are relatively new to the world of trading, it is good to have a team of experts waiting to help you out.

Betterment

Betterment is one of the stalwarts in the field. Actually, it was the very first robo-advisor, and it is still going strong. We won’t hesitate to say that Betterment may be the best option for the completely passive investor. Though its services are not entirely free like M1 Finance, keep in mind that Betterment requires no ongoing maintenance.

This means that you could theoretically invest, adjust your allocations to match your risk tolerance, and sit back and enjoy. You never have to think about your money ever again, only rest assured that it is growing.

Betterment is easy to use, understand, and allows even the greenest of investors a chance at “a piece of the pie”.

Perks of Betterment

There is absolutely no maintenance required. You can invest, forget about it, and come back years later – everything essential has been automated
Tax-loss harvesting. We spoke about this as a significant con with M1; in contrast, Betterment covers tax-loss harvesting with a powerful algorithm, potentially saving you a lot of money
Socially-responsible investing. Of course, this could be performed by manually allocating funds in M1’s pies, but not everyone knows which funds are ethical, and where to get reliable information concerning company ethics. Betterment does this for you with three socially-responsible portfolios.

The Bottom Line

This is quite a battle. It even looks about even; M1 Finance offers a lot more flexibility, but it suffers due to its lack of tax-loss harvesting. On the other hand, Betterment does offer tax-loss harvesting, plus greater access to advisory services, though it does not offer the same kind of creative investing that M1 Finance does.

In the end, we think it is quite simple. Both of these platforms are legit and industry leading for a reason. They are stalwarts, and will probably continue to be for years ahead. M1 Finance is the better option for advanced beginner, or intermediate investors. Betterment is a paradise for novices who will relish the kind of hands-off approach it allows.

Two great robo-advisors, but different strokes for different folks. Either help you start investing today.