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M1 Finance Review - The Best Free Investing App? - YouTube
Channel: The College Investor
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the single most popular trend in
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investing today is passive investing
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most people associate passive investing
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with low-cost broad-based index funds
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like those you can purchase at vanguard
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but can you be a passive investor with a
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more complex strategy m1 finance thinks
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you can in this video we're going to
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review m1 finance and discuss how they
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are working to give passive investors
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what they're looking for hey everyone
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this is andy with the college investor
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investing and personal finance for
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millennials if you're new to the channel
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and like what you hear please hit
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subscribe so you're ready when our next
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video comes out okay let's talk m1
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finance this innovative investing
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platform brings together the best of
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behavioral alpha and low-cost brokerages
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to help users invest with confidence if
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your investment strategy includes buying
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individual shares and low-cost etfs
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you'll be hard-pressed to find a better
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investment tool than m1 finance in fact
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we've had m1 finance honorable mentions
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on our list of the best brokers to
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invest at this year they're also
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consistently mentioned by our readers as
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one of the best places to invest let's
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jump into some of the details of m1
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finance who is m1 finance well m1
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finance is a brokerage firm and robo
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advisory firm that was founded in 2015
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by brian barnes in his book nudge
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behavioral economist richard thaler said
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people have a strong tendency to go
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along with the status quo or default
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option humans need a good default option
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or will make bad decisions this is
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especially true in investing it's easy
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to have great investing intentions but
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fail to follow through on them m1
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finance addresses this concern their
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low-cost investing platform allows you
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to set up your ideal portfolio and
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automate contributions to the portfolio
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once your default is set you don't have
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to think about it again let's talk about
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what m1 finance has to offer they set
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themselves apart from the robo advisory
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crowd primarily through their pricing
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not only do stocks and etfs trade
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commission free but you pay nothing for
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assets under management with a standard
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account that's right my friends you
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don't have to pay any advisory fees with
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m1 finance this is fantastic for a
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company that offers automatic wealth
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management services that most platforms
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charge for like custom portfolios and
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dynamic rebalancing let's talk
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fractional shares it's important to
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mention that most robo advisors work in
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the intersection of behavioral finance
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and portfolio theory most implement
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efficient rebalancing into their
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algorithms some including betterment and
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sofi wealth are close to on par with m1
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finance but some users won't find those
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lower cost robo advisors as compelling
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as m1 finance this is because m1 allows
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investors to include fractional shares
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in their portfolio well what are
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fractional shares you might ask well
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imagine that amazon stock is 800 bucks
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but you only want to own 200 worth of a
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stock traditionally you could buy no
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less than one full share of the stock
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fractional shares allow you to own just
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200 worth of amazon or 0.25 shares
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low-cost brokerages have allowed
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investors to employ fractional shares
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for years but m1 finance is among the
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first automated investment platforms
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that allow you to invest in fractional
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shares this means that investors can
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invest in particular stocks in their
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portfolio and in index fund etfs in the
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other part it should be noted though
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that m1 finance doesn't currently
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support mutual fund investments another
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standout feature is automatic
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rebalancing m1 finance does more than
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automate investing it automates
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efficient rebalancing rebalancing
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involves buying the asset class that is
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underweight and selling that class that
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is overweight buy low sell high is a
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shorthand way of saying rebalance your
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portfolio m1 finance does that for you
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automatically first you set your ideal
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portfolio structure which m1 calls pi
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investing then every time you add money
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to your portfolio m1 automatically buys
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the most underweight asset every time
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you sell they automatically sell the
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most overweight asset another feature is
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m1 spend m1 spend is an fdic insured
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checking account integrated directly
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into the m1 finance app there are two
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different tiers for m1 spend you got the
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basic m1 spin which is free and then m1
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plus which is a premium service m1 spend
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again is completely free it's included
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in all m1 accounts to make managing
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money easier between all three of their
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pillars which is invest spend and borrow
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which i'm going to get to in a second
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m1 spend allows users to receive
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paychecks pay bills and pay with a debit
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card all for free the basic m1 spend
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doesn't offer any interest or cash back
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but if you upgrade to the m1 plus
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premium membership option you'll earn
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one percent apy and one percent back on
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all debit card purchases you'll also
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gain the ability to send physical checks
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for free the big drawback to m1 plus is
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that it does cost 125 bucks per year
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which is discounted to fifty dollars for
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the first year that's a lot of money
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though four dollars and sixteen cents
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per month and what year one then it goes
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up to ten dollars and forty one cents in
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year two etc overall we don't think the
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value of m1 plus is there right now to
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support those fees as an n1 plus member
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you get smart transfers this feature
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allows you to make transfers from your
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invest to spend account
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or from your spend to invest account
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based on your rules that you set up
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while you can always make one-time
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transfers smart transfers allows you to
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set up rules like transfer every dollar
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over a thousand dollars from my spend to
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my invest account this has great
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potential as it allows you to deploy
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your cash based on rules that you set
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and if you're trying to build or
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replenish an emergency fund you can set
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up your invest account to transfer all
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of your cash from things like dividends
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back into your spend account and then
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there's m1 borrow using m1 people can
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invest for free and exactly what they
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want but doing so automatically opens up
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a portfolio line of credit at one of the
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lowest interest rates on the market it's
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significantly easier to access more
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flexible on terms and lower cost than
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any other method of borrowing money that
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we've seen whether it's a mortgage or a
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heloc or auto loan or a personal loan
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this type of borrowing has historically
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only been available to the ultra wealthy
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who use it extensively due to the
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flexibility and low rates m1 makes this
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even easier and less expensive and opens
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it up to a much larger audience to
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qualify users must have a taxable m1
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brokerage account with an account
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balance of 5 000 or more iras they don't
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qualify your credit score doesn't matter
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and m1 finance doesn't do a credit check
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since it uses your portfolio as
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collateral you can borrow up to 35 of
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your accounts equity balance out for a
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loan
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the interest rate for standard accounts
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is 3.5 which is already very low when
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compared to the margin rates of other
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brokers and m1 plus members can get an
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even lower rate at two percent the
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really interesting thing is that there's
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no set payment schedule you can pay this
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back as you see fit simply realizing
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interest every month on your outstanding
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balance there are three main risks with
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using m1 borrow interest rates rise
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their portfolio value declines and
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forces a maintenance call or losses are
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magnified due to leverage make sure
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you're aware of these risks if you're
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taking advantage of this feature what
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about custodial accounts you might ask
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well if you have m1 plus which is their
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premium service you get access to
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custodial accounts as well where you can
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set up an account for your children to
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invest for the long term this account is
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a ugma or utma account that you hold and
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make contributions on behalf of a child
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you the custodian can manage the account
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but the child is the beneficiary of the
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account and the owner of the assets in
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the account each deposit is considered
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an irrevocable gift and there is no
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maximum amount that can be contributed
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it's important to remember that this
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type of account can have implications on
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financial aid if you're considering
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using this account to save for college
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we recommend that you use a 529 plan
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instead and one final feature we want to
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review is m1's rewards credit card m1
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finance will soon be launching the
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owner's rewards card and it will be
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another exclusive m1 plus benefit the
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card will offer 2.5 5 or even 10
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cashback at certain popular brands
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and all other purchases made with the
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card will earn a flat 1.5 percent back
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unlike other rewards cards the cash back
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that you earn for the owner's rewards
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card can automatically be reinvested
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into your m1 finance m1 invest portfolio
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the card isn't available yet but m1 plus
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members can join a wait list today now
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you might be thinking m1 finance sounds
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great but are there incentives for me to
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move my business away from my current
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brokerage partner well m1 thought of
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that too m1 finance is currently
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offering a bonus to new customers who
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move their accounts over to m1 finance
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if you transfer your account over within
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60 days of opening your m1 finance
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account you can get up to 2 500
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depending on how much you bring another
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promotion that m1 finance is offering is
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one year free of m1 plus which is
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normally 125 per year so in the end is
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m1 finance worth it well as with all
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investing platforms m1 finance isn't for
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everyone but if you're looking for free
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access to robo advisor platforms m1
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finance is one of the cheapest players
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out there
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anyone who subscribes to the technical
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analysis investing philosophy should
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probably avoid m1 finance too you'll
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spend too much time manipulating your
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portfolio instead you'll want to choose
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a trader focused broker like td
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ameritrade or ally invest m1 finance
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offers a real value to investors
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including free trading free iras
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automated deposits completely automated
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portfolio management which is all
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customizable fractional shares
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one touch rebalances low margin rates
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and a slew of other features which we
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already mentioned one thing that you
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should note all of m1 finance's
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portfolio dashboards consider your m1
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finance portfolio so if you've got
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significant assets in your work 401k or
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an outside account you'll need an
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overall portfolio rebalancing strategy
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consider the free tools over at personal
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capital to get total portfolio
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statistics honestly m1 is a great choice
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and as they continue to add more
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features and support we're excited by
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what they're doing to learn more about
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m1 finance check them out using the link
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in our description thanks for hanging
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out today this is andy from the college
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investor we'll see you in the next video
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