December 1, 2023

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Roth IRA Fund Options From M1 Finance

M1 Finance is a robo-advisor that offers low-cost, automated and customized services to investors, enabling them to choose from among more than 80 pre-built portfolios called “pies.” M1 Finance is a private company. Besides its investment platform, M1 Finance also provides lines of credit and digital banking services. As of Sept. 1, 2021, the company offers 1,873 ETFs and users managed $5 billion in assets on the company’s platform, up from $1 billion in early 2020. The company was founded in 2015.

M1 Finance does not offer mutual funds, but it currently provides access to 1,873 exchange-traded funds (ETFs). Notably, M1 Finance’s basic investing service is free to use, charging no commissions on trades and no platform fees.

Investors in the U.S. have access to several tax-advantaged saving plans, including 401(k)s, individual retirement accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. That means that contributions to Roth IRAs are not tax-deductible, where they are with traditional IRAs. But unlike a traditional IRA where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

Key Takeaways

  • M1 Finance was founded in 2015. Its users manage approximately $5 billion of assets on the company’s platform, as of Sep. 2021.
  • When making a retirement account, a broad stock fund and broad bond fund provide a good foundation, either as the entire basis for investing or to build upon with more complex investments.
  • Roth IRAs allow you to avoid paying taxes on investment returns by investing after-tax income now.
  • VTI and SPAB can serve as good starting points when looking for Roth IRA investments from M1 Finance.

Below, we take a closer look at a broad-based stock fund and a broad-based bond fund available to M1 Finance investors. M1 Finance is not a fund provider with its own fund family available. We’ve selected below the least expensive broad-based funds. Index funds in the same category provide largely similar products if they are tracking the same or similar indexes. In these cases, cost is a major determining factor. All figures below are as of March 26, 2022, except where indicated.

  • Expense Ratio: 0.03% (as of April 29, 2021)
  • Assets Under Management: $290.8. billion
  • 1-year year-to-date total return: -5.29%
  • 12-month Trailing (TTM) yield: 1.33%
  • Inception Date: May 24, 2001

VTI is an ETF that aims to track the performance of the CRSP U.S. Total Market Index, an index comprised of thousands of stocks across the market-cap spectrum and which represents approximately 100% of the U.S. investable equity market. The fund provides broad, diversified exposure to the U.S. equity market. It is managed by Gerard O’Reilly and Walter Nejman. O’Reilly has advised the fund since 2001 and Nejman since 2016. Of the ETF’s 4,070 holdings as of Feb. 28, 2022:, 66.4% are large cap stocks, 3.3% are somewhere between mid and large cap, 15.3% are mid cap, 6.6% are between small and mid cap, and 8.4% are small cap. The average market cap within the fund is $510.6 billion.

VTI is the cheapest broad stock fund with the most holdings offered on M1 Finance’s platform. A single broad stock fund is normally sufficient for most investors looking to build a long-term portfolio for retirement. A total stock market fund, like VTI, is preferable to an S&P 500 index fund because it offers greater diversification by providing exposure to small cap and mid cap stocks in addition to large caps. The iShares Core S&P Total U.S. Stock Market ETF (ITOT) and the Schwab U.S. Broad Market ETF (SCHB) are also inexpensive alternatives for investors seeking a somewhat greater focus on large-cap stocks. But VTI has more holdings, making it more diversified than the other two.

A broad-based equity fund like VTI carries a certain degree of risk, but it also provides investors with fairly strong growth opportunities. For many investors, this ETF may act as the foundation of a well-diversified investment portfolio. However, for those with a very low risk tolerance or who are approaching retirement, a more income-oriented portfolio may be a better option.

  • Expense Ratio: 0.03%
  • Assets Under Management: $6.6 billion
  • 1-year trailing total return: 5.38%
  • 12-Month Trailing (TTM) Yield: 2.16%
  • Inception Date: May 23, 2007

SPAB is a passively managed ETF that seeks to track the Bloomberg U.S. Aggregate Bond Index, a market-cap weighted index of U.S. dollar-denominated investment grade bonds including government bonds, corporate bonds, mortgage pass-through securities, commercial mortgage backed securities and asset backed securities. SPAB provides a broad exposure to the overall U.S. bond market. SPAB is the cheapest broad bond market fund offered by M1 Finance. The managers of the fund are Marc DiCosimo and Michael Przygoda. Of the fund’s 6,705 holdings, 39.5% are Treasurys, 27.4% are mortgage backed securities, and the remaining are corporate industrial, finance, utility, and assorted additional bonds.

Broad-based bond or fixed-income funds are generally less risky than equity funds. However, bond funds don’t provide the same growth potential, which means generally lower returns. They can be useful tools both for risk-average investors and as part of a portfolio diversification strategy. Consistent with modern portfolio theory, risk-averse investors will find that investing in both a broad-based bond fund and a broad-based equity fund provides diversification. It is an approach that tends to maximize returns while minimizing risks.

Traditional wisdom suggests that that the precise mix of stocks and bonds in a long-term portfolio should follow the 60/40 rule—60% stocks and 40% bonds—and that the proportion of stocks to bonds should shrink as the investor ages. But conventional wisdom has changed and many financial advisors and prominent investors, including Warren Buffett, are now recommending that holding a higher percentage of stocks throughout an investor’s career can greatly enhance potential returns while only marginally increasing the risks. Investors should always consider their own financial needs and appetite for risk before making any investment decision.

Does M1 Finance have a Roth IRA?

M1 Finance does offer a Roth IRA investment option, as well as traditional IRAs and SEP IRAs.

What fees does M1 Finance charge for a Roth IRA?

M1 Finance has no management fees or hidden fees for Roth IRA accounts. Closing a Roth IRA or initiating an outgoing account transfer from M1 Finance each incur a charge of $100.

Can you roll over retirement accounts to M1 Finance?

Yes. M1 Finance allows for transfers and rollovers of retirement accounts from other providers.

The Bottom Line

A Roth IRA offers investors certain tax advantages. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short,
funds invested in a Roth IRA can grow tax free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and the amount of time and energy they have to research various investments.

For investors with little time and energy, one option is to go with a few large and diversified funds, allocating part of their money to a broad-based stock fund and another part to a broad-based bond fund. These large, diversified funds also may create a solid foundation for many investors who do have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific niches of the market, such as small cap stocks.