M1 Finance AppFree
Pricing & Fees5.0/5
Investment Tools & Features5.0/5
Ease of Use4.5/5
- Trade fractional shares
- No trading fees or asset management fees
- Flexible portfolio building in addition to Expert Portfolios
- Intuitive dashboard with your investment performance and bank account information
- Complete transparency about how M1 Finance makes money
- Only 1 (or 2) daily trade windows
- Small, inactive accounts charged fees
- No financial advisors, even for a premium upsell service
M1 Finance is a revolutionary platform designed to make investing in fractional shares affordable and accessible to the general public.
The company fully automates your finances to work for you through automatic deposits, pre-selected or custom built Portfolio Pies, Dynamic Rebalancing and a linked checking account and debit card through the company’s M1 Spend product.
The company has also dramatically lowered the barriers to entry for purchasing into some of the highest-priced stock shares available on the market.
With fractional shares, you can buy into companies with high per share stock prices without having to come up with an enormous sum of money upfront.
This levels the playing field for small investors and large investors alike. Having access to the shares of these previously difficult-to-access companies in the stock market makes it possible for anyone who wants to invest in stocks to do so at any time they want – not just when they have enough cash on hand.
This article will walk through M1 Finance’s fractional shares system, its benefits and drawbacks, how to make money with fractional shares and calculate them as well as the stocks available for fractional shares investing.
What are Fractional Shares?
Fractional shares are a part of a share – not the whole. A fractional share is a portion of stock in an individual company that has been divvied up into many shares, typically to make investing more affordable and accessible for those who do not have large sums of money available upfront or are just beginning their careers.
The theory behind fractional shares is nothing more than allowing people to invest in a company with an expensive share price with smaller amounts of money.
For example, if fractional shares were available for Tesla, they could be bought at the fraction of the cost of a full-price share – even a few dollars worth. This would allow people with smaller budgets and those who are just starting out to buy into this lucrative company.
Before fractional shares investing, you could only do this through purchasing shares in a mutual fund, exchange-traded fund (ETF) with the hope that the underlying stocks held by the fund would perform and increase your equity in several companies simultaneously.
Some markets, like the New York Stock Exchange (NYSE) or the NASDAQ require investors to buy whole shares in a publicly-traded company.
Meaning, investors who wish to buy shares in Alphabet or Berkshire Hathaway could only do so if they had a lot of cash on hand or they chose to purchase them as part of a larger basket of securities in a mutual fund or ETF.
This can be a great investment option to new investors looking to buy in some of the most innovative and successful companies on the market without breaking the bank.
What are the Benefits to Fractional Shares Investing?
Fractional shares can provide a significant benefit to your portfolio.
Investors can purchase fractional shares in companies like Alphabet, Berkshire Hathaway and other high-priced stocks without having to buy whole number of shares (in other words, full shares of stock).
This lowers barriers to entry for investors who may not be comfortable investing a large amount of money into one company’s stock or don’t have enough cash on hand at the time.
This allows small investors to transfer a consistent amount of money into their account and know it’ll get invested at transfer, not only when they’ve accumulated enough money to purchase a whole share.
Based on the dollar-cost averaging investment strategy, this allows for real-time purchasing and not delayed investments over lumpy periods of time.
Fractional shares allow you to diversify your portfolio with ease, which can help spread the risk of your investments and potentially increase your overall return.
If you had to stash your money until you could afford one high-priced stock, it might mean your portfolio carries a lot of undesired exposure to a smaller basket of stocks while you wait to accumulate enough money to buy a whole share of a company you really want.
Investors also have more control over fractional shares than they do with only being able to buy and sell whole shares. You might not wish to liquidate a whole share of Tesla and instead only need a fourth of the share’s value for some purchase.
Fractional shares allow you to choose exactly how much money you need to pull from the market if you have a financial need.
For example, if Tesla stock is worth $750 and you currently hold $3,500 worth of the stock, you’d own 4.67 shares of the stock.
You might only need $300, lowering your ownership to 4.27 shares of stock. You don’t need to sell a whole share to get cash when you only need a fraction of a share’s worth.
Essentially, fractional shares investing allows you to invest in the market on any budget.
What are the Potential Drawbacks to Fractional Shares?
Fractional shares level the playing field for investors looking to diversify their portfolio and maximize their potential returns. This doesn’t mean it all comes up roses for fractional shares investing, however.
First, not all commission-based or free stock trading apps will offer fractional shares. This means you remain locked in to your broker or have a limited number of stock trading apps you can consider for your investing needs.
Fortunately, some of the best investing apps for beginners and experts meet a lot of your needs if you have small budgets. Likely, sophisticated investors have more access to capital and fractional share investing presents less of a benefit because they have easier access to capital than a new or smaller investor might.
Second, just because your broker offers fractional shares doesn’t mean they can trade in fractional shares on an exchange. This means you may need to wait for another investor at your same broker to place a trade that meets the missing balance of your fractional share to complete a whole share.
While not as much of a problem on very liquid stocks with high trading volumes and on apps with millions of investors, this is something to keep in mind for lower volume stocks.
Third, some brokers may charge fees for trading fractional shares. None of the apps recommended by this site do this, but other brokers exist and may.
Related: How to Get Free Stocks
How to Make Money with Fractional Shares
Fractional shares investing works just like regular investing with whole shares. The same strategies you would use for your whole share investing opportunities you would use for fractional share investing.
That means finding good stocks to buy through conducting your own stock research, or subscribing to things like:
Depending on your investing objective and style of investing, my top pick is Motley Fool’s Stock Advisor subscription service. For $99/year, the company vets high-quality stocks likely to outperform their industry and deliver alpha above market returns.
They’ve got a great track record, outperforming the S&P 500 by 5x over the last 20 years. I’ve personally subscribed and invested money in M1 Finance Roth IRA to test the service.
I expect to continue subscribing to get their latest stock picks and add to my portfolio as time goes on. This is long-term money and looking for continued upside potential.
Consider pairing these recommendations with the best stock analysis apps to understand more behind their picks and also learn more about how to research stocks and analyze them for potential future performance.
You can then use powerful stock tracking and portfolio monitoring apps to see how they trade over time.
How to Calculate Fractional Shares
Calculating fractional shares is an easy exercise. It anchors on two items: the current value of one share of stock and the amount of money you have available to invest.
You divide the value you want to invest by the current price of a single share of stock. This gives you the fractional share size.
For example, if you had $100 to invest in Alphabet stock ($2,500/share), you’d own $100 / $2,500 or 0.04 fractional shares of the whole stock.
M1 Finance splits every stock share into 1/100,000 of a share so your investment amounts can better match your target portfolio allocation.
Is There an M1 Finance Fractional Shares List?
Any stock currently listed on the M1 Finance platform as available for trading qualifies for fractional shares.
This allows you to choose the exact dollar amount you’d like to invest and always stay invested without idle cash dragging down your portfolio’s returns over long periods of time.
You don’t need to worry about doing fast math on the number of shares you can purchase with a fixed amount of money to invest.
Instead, you can choose the amount of dollars you’d like to invest and have M1 Finance handle the math for you and place these new fractional shares into your Portfolio Pie.
M1 Finance Fees for Fractional Shares Investing
M1 Finance works as a free investing account platform. That means no trading commissions nor fees for placing fractional shares trades.
The platform does have lower account minimums where fees will get assessed if your balance falls below a certain level for a length of time.
For taxable accounts, you must maintain at least a $100 balance while individual retirement accounts require a $500 minimum to avoid fees.
How Can I Invest with M1 Finance?
The M1 Finance app offers investors two options for investing on their platform.
The first option entails a traditional investing method: build your own tailored portfolio with your personal picks of stocks and ETFs you think will meet your investment objectives.
If that option sounds unappetizing or otherwise uncomfortable from an investment selection perspective, you can opt for their pre-made “Expert Portfolio Pies” containing different stocks and ETFs for your money.
With either option, you can set predetermined percentage amounts for your M1 Finance investment account (they offer several types of investment accounts) and then buy stocks and funds to match those percentages.
Investors can also buy fractional shares of stock on their own without an extra charge or trading commissions.
As you earn dividends, you can choose to reinvest them automatically in accordance with your portfolio preferences, making automated investing through M1 Finance one of the best passive income investment ideas.
Read more about the app in our M1 Finance review.
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Which Other Brokers Offer Fractional Share Investing?
In addition to M1 Finance, you’ve got some other options for fractional share investing.
1. Stash: First-Time Investors
- Available: Sign up here
- Price: Beginner: $1/mo, Growth: $3/mo, Stash+: $9/mo
Stash is an all-in-one investing platform that caters to beginners. That means it can be a kids investing app, work as an investing app for minors or be a way for teenagers to invest money. It grows with the user into adulthood.
The company offers fractional shares as part of their Stash Invest app, which can be accessed by signing up for the service on the website.
Investors have access to over 50 different ETFs that they can purchase fractional shares in and invest their money across multiple baskets through just one platform.
Stash charges a low monthly fee of $1/mo for their Stash Beginner Plan, $3/mo for their Stash Growth plan and $9/mo for their Stash+ Plan.
2. Robinhood: Active Investors
- Available via desktop, Apple iOS and Google Android.
- Sign up here
Robinhood is a micro-investing app geared toward millennials looking to invest from the convenience of their smartphones. The company forced the industry to adopt commission-free trading, allowing Robinhood to make money largely from monetizing its order flow.
The company offers fractional shares as part of their Robinhood Instant account, which can be accessed by signing up for the service on the website.
While there is no fee to open an account with Robinhood, they charge $0.0025/share when a stock position is opened and then rebates that amount when the position is closed.
Investors have access to stocks that trade on the NYSE, NASDAQ and AMEX exchanges as well as ETFs listed in the US Market from a variety of issuers at fractional shares prices.
The app allows investors to purchase fractional share positions in up to four different companies simultaneously with no commission fees.
3. Betterment: Tax-Efficient Robo-Advisor
You can use the Betterment robo-advisor platform to invest in fractional shares of ETF index funds. The service does not allow you to invest in individual stocks but will automatically place deposits into fractional shares of index fund ETFs aligned with your portfolio objectives.
The service charges an all-encompassing 0.25% assets under management fee but can justify this expense in taxable brokerage accounts through its tax-loss harvesting feature.
This sells losses to lock in short-term capital losses and lower your taxable income while taking your proceeds and placing them into a similar investment. This lowers your taxable income or other capital gains and can easily cover the 0.25% annual AUM fee.
About the Site Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see the disclaimer on my About Young and the Invested page.