Roth IRA Fund Options from M1 Finance

VTI and SPAB are a good place to start

Fact checked by Timothy LiReviewed by Ebony HowardFact checked by Timothy LiReviewed by Ebony Howard

M1 Finance is a robo-advisor that offers low-cost, automated, and customized services to investors, enabling them to choose from among more than 60 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.

Key Takeaways

• M1 Finance was founded in 2015. Its users manage approximately $8 billion of assets on the company’s platform, as of May 2024.
• When assembling a retirement account, a broad stock fund and a broad bond fund provide a good foundation, either as the entire basis for investing or to build upon with more-complex investments.
• Roth individual retirement accounts (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.

As of May 2024, users managed more than $8 billion in assets on M1 Finance’s platform, up from $1 billion in early 2020. The company was founded in 2015.

M1 Finance doesn’t offer mutual funds, but it provides access to 6,000 stocks and exchange-traded funds (ETFs) as of May 2024. Notably, M1 Finance’s basic self-directed investing service is free to use, charging no commissions on trades or management fees.

Types of IRAs, Funds at M1 Finance

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. This means that contributions to Roth IRAs aren’t tax deductible, as 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 But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax-free.

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 isn’t a fund provider with its own fund family. We’ve selected 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 when selecting them for investing.

All figures below are as of May 24, 2024, except where indicated.

Vanguard Total Stock Market ETF (VTI)

• Expense Ratio: 0.03% (as of April 26, 2024)
• Assets Under Management: $1.5 trillion (as of April 30, 2024)
• Year-to-Date Total Return: 10.74%
• 12-Month Trailing (TTM) Yield: 30.16%
• Inception Date: May 24, 2001

VTI aims to track the performance of the CRSP U.S. Total Market Index, an index composed of thousands of stocks across the market-capitalization 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.

VTI 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 3,719 holdings as of May 24, 2024, 69.6% are large-cap stocks, 4% are somewhere between midcap and large cap, 13.6% are midcap, 5.5% are between small-cap and midcap, and 7.3% are small-cap. The average market cap within the fund is $683.1 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 midcap 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.

SPDR Portfolio Aggregate Bond ETF (SPAB)

• Expense Ratio: 0.03%
• Assets Under Management: $7.78 billion (as of May 23, 2024)
• Year-to-Date Total Return: -3.20% (as of April 30, 2024)
• 12-Month Trailing (TTM) Yield: -1.49% (as of April 30, 2024)
• 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 (MBS), and asset-backed securities (ABS). 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, Michael Przygoda, and Joanna Madden.

Of the fund’s 7,498 holdings as of May 23, 2024, 41.39% are Treasurys, 25.47% are MBS, and the remainder 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 both for risk-averse 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 Individual Retirement Account (Roth IRA)?

M1 Finance does offer a Roth individual retirement account (Roth IRA) investment option, as well as traditional IRAs and Simplified Employee Pension (SEP) IRAs.

What Fees Does M1 Finance Charge for a Roth IRA?

M1 Finance has no management fees or trading commissions for Roth IRAs. Closing a Roth IRA or initiating an outgoing account transfer from M1 Finance each incurs 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 aren’t 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 how much time and energy they have to research various investments.

For investors with less time, 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 can create a solid foundation for many investors who do have the extra time and interest to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific niches of the market, such as small-cap stocks.

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