Today marks the day when this blog turns 2 years old!
This is a pretty huge deal from a personal standpoint. While I have maintained a blog at different junctures in my life, those blogs eventually died away because I simply lost interest OR some other project took precedence. The fact that I have been at this for two years is an achievement onto itself.
When I started this blog, I had my doubts as to whether this was the right medium to document my personal journey as an investor. The YouTube scene was pretty vibrant. Folks were (and still are) getting onto podcasts. But somehow these mediums never really fit the bill for my personal situation. I was pretty sure that I wanted to maintain an anonymous presence on the internet while documenting my journey. I was also pretty sure that this time spent should give me back some value in return as well. Not necessarily, monetarily. But atleast it should help me in my investing journey in some shape or form.
Blogging seemed to check a lot of boxes. Since my free time comes sporadically, I can think about what I want to write and start drafting my post mentally even before I am in front of my keyboard. Writing helps my thought process. It either reinforces my beliefs OR forces me to question my understanding. Either way, it makes me really think critically about my subject matter (in this case my investments).
But perhaps the biggest gains have been an opportunity to interact with you, the readers of my blog. I have also had to privilege of appearing as a guest on the following podcasts and interacting with some really smart folks. Do check these podcasts out, these folks are doing some amazing job!
I wanted to start off by wishing you all a Merry Christmas and Happy Holidays! Hope you are spending some quality time with your family and friends, and looking forward to the upcoming year with new goals for your personal and professional lives.
I know several of us here in the US are having a rather difficult time due to the “bomb cyclone” winter freeze. If you are in one of these affected areas, my prayers are with you and your loved ones. I hope that you can come out of this safe and strong.
On my end, this has been a roller-coaster of a year. For a personal standpoint, this has been a rather difficult and challenging year. I have had to deal with family medical emergencies since the start of the year and continuing well into the later half of the year, which eventually led me to travel internationally on a very short notice. On the professional front, I went through a job switch for better growth prospects. So far, this has seemed to be a good career move, but these are still early days.
As an investor, I was lucky that I was not actively tracking the market, because several of my positions saw massive drops from the highs of 2021. Luckily for me, my investing strategy motivates me to look at this as a buying opportunity, so I decided to stay invested and keep adding to my positions. In hindsight, 2022 will be looked at as an ideal year for a dividend growth investor. So if you managed to get started during this year, kudos to you for taking this step!
I wanted to use this post to take a step back and revisit the goals that I had set for myself at the start of this year and see how I fared against each of them.
Goals for 2022 Revisited
Cover atleast 5 investing book through reviews
One of the goals that I set for myself is to read and review some good investing books during this year. I set out a number of 5, knowing very well that it was a stretch goal. How did I fare here? Well, I did not cover 5. I covered 3 instead. However, I am very happy with the 3 books that I did choose during this year. I started the year reading and reviewing Richer, Wiser, Happier by William Green. Quite honestly, this was a fantastic pick to start the year off with, because this has been one of the best investing books I have read that has been published in the last five years. I got the feeling that this was multiple value investing books rolled into one, purely because of the number of investing legends covered in this book and their investing gems. I have a twitter thread and a blog post covering this book, so please do take a look at those if you want more details.
The second book was The Little Book of Valuation by Prof. Aswath Damodaran. One of my goals this year was to improve my valuation skills and I can’t think of a better person to learn these skills from other than Prof. Damodaran. While this book does not disappoint, I got a feeling that putting this subject under the “Little Book” umbrella did a huge disservice to this subject. Valuation is math and I felt the book undersold the math because it needed to be concise. But this is still a great book to get started with if you want to learn about Discounted Cash Flow and learn the concepts from first principles.
The third book was Philip Fischer’s Common Stocks and Uncommon Profits. Another very high quality book, and although it was written several decades back, it is surprising to see how some of the principles mentioned in this book continue to apply even today. I think this is one of those books which I will certainly re-read several times in the coming few years.
Given the high quality of the books I covered, I am not at all disappointed that I could only cover 3 books. But I did miss on this goal.
Write alteast one blog post per week
I missed on this goal big time. A switch in jobs does not help. Family medical issues did not help either. But a miss is a miss, so there goes another one.
Earn $3000+ in annual dividend income
I am happy that I was able to achieve this goal and quite comfortably in the end. And I am still expecting to receive sizeable dividends from TROW and LMT during the last few days of this year. This was a huge win for me in a year where plenty of other stuff was happening in my life.
Investing – 2022 Revisited
I am very happy with the progress with my portfolio and also the knowledge/skill-set additions to my investing repertoire. Like I mentioned earlier, I wanted to improve my valuation skills and I used the most of this year towards that pursuit. It is still a work-in-progress and I will certainly keep at it during the upcoming year as well.
I am also happy that I ventured into option trading during this year. My outlook on this investing style is mixed. While I can certainly see how I can use this strategy to supplement the income I receive through dividends, this certainly seems to add a lot of unwanted stress. I also have a tendency to keep looking at the current stock price on a day-to-day basis for positions on which I have written an option contract, and this is something that I largely consider as a waste of time. Like with everything, maybe it is something that I need to keep working on and improving.
I am super happy that I resisted the temptation of diving into cryptocurrency back in 2021, because at the time of writing this, almost all of these ventures have ended up being disastrous investments. I’ll be honest, it was not easy to resist the FOMO when every person around you (real life or social media) was talking about making easy money through their crypto investments. I did look into this, and even to this day, I cannot understand how one can value assets like these. I do not intend to sound cocky or get into a “I told you so” sermon for those of you who did end up losing money as a result of these investments. I completely understand your disappointment and feel sorry for this situation. But I do hope that you use this experience as a learning and never repeat it again in your investing journey.
Looking ahead at 2023
I honestly have no idea what to expect in 2023 as far as the stock market. There is all this talk about recession, but for all we know, this may never even happen. There is also talk about an immediate recovery from inflation. I am not sure about that either. I can certainly see how the Fed’s decisions to hike the interest rates will certainly help in keeping inflation in check and eventually reducing it, but I am not sure if this recovery is going to be “immediate”. These predictions are just random guesses and one should not give them more weight than they deserve.
2023 Blog and Portfolio Goals
As far as goals for my blog and my portfolio, I have the following three:
Review 4 books on investing and business
Have atleast 2 guests “on the blog”
Complete atleast 5 deep-dives on my positions
Earn $6000 in annual dividend income
The first goal is a no-brainer. I think reading and reviewing books has been very rewarding for me both as a person and as an investor. However, unlike last year where I had the number set to 5, I have dropped this number to 4 for this year, more like one book for quarter. I think this is an achievable number. We shall see 🙂
I have been very very lucky to interact with some really high-quality minds both through this blog as well as on Twitter. I have also had the privilege to be on as a guest on one of my favorite podcasts, Dividend Talk. I think these interactions are priceless as we get to hear from investors from within the dividend investing community and gain inspiration from their stories. I would like to carry forward and have atleast a few guests “on this blog”. I am not quite sure what this means at present: do I have them contribute to guest posts? do I interview them and post the transcript here? Do I post an audio version of the interview here via a podcast? These are details that I need to ponder over and work out. But I will make this happen.
One aspect of my blog that has suffered during this year is my deep-dive posts category on my blog. I intend to address this during this year, my covering atleast 5 of my positions through deep-dive posts. I already have my investment theses for all my positions, I just need to polish them up and present them as a meaningful blog post.
For the last goal, I would like to earn $6000 in annual dividend income. Based on my calculations and assumptions of my monthly contribution rate, I think this is slightly out of my projected annual dividend income (PADI) for end of next year. But that said, I would like to challenge myself and my portfolio to make this a fun experience. 🙂
2023 Misc Goals
In addition to these goals, I would also like to pay more attention to my health and overall fitness. There is no point in pursuing these investments and waiting for 20+ years, if I am not in good physical health to enjoy them. So this would mean going out for regular walks/runs and spend some time in daily meditations.
One of my hobbies that has taken a backseat over the last few years is that of nature photography. And I intend to get back to that sometime during the course of 2023. If feasible, I might end up posting some of my clicks on this blog as a part of some of my update-type posts. We shall see again 🙂
Friends, 2022 has been a tough year for me, but I take it in my stride. Ups and downs are very much a part of everyone’s lives, especially for stock-market investors who are used to seeing ups and downs in the market. I am very much looking forward to 2023 as I stay strong during the accumulation phase of my dividend investing journey.
Once again, I wish you and your families a very Happy Holiday season. I am very thankful to all of you for your readership, your comments, your likes and your thoughts on this blog and I hope that I can continue adding value to your investing journeys through my content on this blog.
I am elated to share that I was on the Dividend Talk podcast joining hosts Engineer My Freedom and European Dividend Growth Investor to discuss my journey thus far as a dividend growth investor. In my humble opinion, Dividend Talk is one of the few high-quality podcasts out there that focuses purely on dividend growth investing. And although the show title states that the discussion is with a “European flavor”, the hosts adequately cover both European and US stocks.
It was a privilege to be a guest on this show. I am sharing a link to the podcast episode (Episode 125). Please also consider subscribing to the podcast and to the individual blogs/youtube channels for the hosts. These resources are helping me in my quest to be a better investor and I hope they will help you in a similar manner.
I hope you are all doing well, staying safe and healthy and making progress on your individual journeys towards financial independence. As I write this, we are in the midst of a hectic earnings season. We are seeing record high inflation numbers and this is having a telling effect on the earnings reports from several companies, many of whom have slashed their forward guidance.
I am yet to fully digest the quarterly earnings report from several of these companies as work has been very busy as well. But I do plan to do so in my free time over the next few weeks.
In order to keep myself occupied, I am reading an investment classic and I should be posting a book review for this shortly. Stay tuned for that.
One thought that was circling in my head is that THIS is a fantastic opportunity to learn as an investor as we have all kinds of trends influencing the macro economic environment: War situation in Eastern Europe, Record high inflation, Pandemic that does not seem to be going away anytime soon and also supply-chain issues a result of one or more of these earlier reasons. Let me state that everyone appears to be a “genius” in bull-market situations, but real learnings are when you get to invest in a bear market scenario.
I wish you all the very best! See you in the next post.
This is intended to be a brief post. Blog updates have been slow over the last few weeks. This is owing to two major reasons. Firstly, I recently switched jobs and, in general, the initial few days/weeks at the new job are rough, as one begins to ramp up and get up-to-speed. Secondly, one of my family members based outside the country landed up in the hospital again due to a recurrence of an issue with the surgery that had happened earlier in the year. This is terrible news to receive at any time, but it is especially hard when you have just switched jobs.
As a result, this last month has been mentally and emotionally draining for myself and my family. We were seriously contemplating if we would need to travel out of the country on an urgent basis. This was especially challenging considering our employment benefits (primarily health insurance) per the new employer’s plan were yet to kick in and travelling during this time could be tricky.
While life was happening, I obviously had to ignore my portfolio and the world of investing in general.
Things have thankfully started coming back to normalcy again and the family member is out of danger (touch wood). I finally had a chance to look at my portfolio and saw all the red, which made me….. well…excited. 🙂 Why? Because this means potential buying opportunities. April was expected to be a slow month for me as far as earned dividend income. I will cover more of this in a monthly income update post that should be up very shortly.
As I write this, earnings season is on us, so I will be using my free time in the next few weeks digesting the data in these 10-Qs especially for companies that are on my “need to analyze further” list.
I sincerely hope that all of you guys reading this post are doing well, staying safe and healthy and making good progress in your own journeys towards financial independence.
I sincerely value your readership and appreciate your patience over the last few weeks in sticking with my blog updates. I am hoping that I have not lost you. Life has been crazy busy over the last several weeks. As I stated in my previous post, I am going through an fairly significant change in my professional life which has been consuming a lot of my free time. I would finally like to talk about this in this post.
Before getting started, I wanted to take you back to the topic of “Savings Rate” which I have also talked about previously on this blog.
A simple equation to look at your savings is as follows:
Savings = Income Generated – Expenses
Our objective is to improve the savings rate to the best extent possible, because higher the savings, the more capital we have to invest into our own future. For dividend growth investing to work as a strategy, it is important to ensure that we are investing as much capital as we possibly can atleast during the accumulation phase of our investing journey.
None of this should be overly controversial as the subject of improving the savings rate is pretty critical to the success of ANY investing strategy, let alone dividend growth investing.
The part of the equation that does not get as much attention as it should is the “Increasing Income” part. Since we are so hyper-focused on the “reducing expenses” part of the equation, we generally ignore the aspect of getting better at our day jobs and “coast” through it. Some of this is due to the relative comfort of our job, we understand it pretty well, why push ourselves in the quest for something better? Is it really worth it?
In my case, I saw a couple of interesting dynamics that prompted me to seriously ponder over this question. The rising inflation was one of these factors. At the time of writing this, we are seeing record-high levels of inflation and it is unclear how long this situation will last. The other dynamic was a question about my employer’s profitability in the years to come. As an investor, I am now used to reading through financial statements and questioning aspects of the businesses that I am invested in. I used some of these learnings to study the financial statements of my own employer. The exercise revealed some interesting insights. I was able to make reasonable approximations about the company’s long-term profitability and make reasonable guesses about how long it would take me to reach my financial goals if I would stick with this employer. It also dawned on me that while things are great with my employer at present, there is only so much I could do to boost my pay beyond a certain level. Ultimately, this exercise prompted me to start considering other options.
Interviewing in my area of expertise (i.e. tech sector) is incredibly hard and requires months of arduous preparation. This is because the interview process itself is fundamentally broken thanks to the FAANG (Facebook/Meta, Apple, Amazon, Netflix, Google) style of companies. These companies have tailored the software engineering interviews to include questions surrounding topics that an engineer would have typically studied back in graduate school. These questions, while academically interesting, have arguably little practical relevance. Unfortunately, the rest of the tech industry has been so enamored by these FAANG companies that they have replicated the interview process as well. It can be mind-numbingly stupid at times, but there is nothing much anybody can do about this.
Anyhow, the mere thought of preparing for interviews can be demotivating by itself. In my case though, I had to look past this and focus on my larger goals. So I prepared….juggling my responsibilities between a full-time job, my family responsibilities and using every little free time available to prepare.
After interviewing with several potential employers, I landed up with offers from a handful of them. Apart from evaluating the offers themselves, I studied each employer’s history by looking through their annual SEC filings, reading up about the management itself and factoring those into my decision making. This is something that I never did previously in my career. I would mostly look at the role itself, look at the offer in isolation, rely on the recent media news about the company and just take a blind leap of faith about the health of the company. My education as investor has forced me to research these other aspects of a potential future employer and use that to make a decision.
In the end, I am happy that I went through this process. Change is incredibly hard to accept especially as one progresses through life. But sometimes it is important to take a step back, analyze and make a difficult decision. At this point, I have no idea if my decision is right or not. But the decision is based on a logical premise, and that is all that is in my control.
I have been a little slow with my updates on both my blog as a well as on Twitter. Couple of reasons here: (1) I am going through an important change in my professional life, and (2) I was out vacationing with my family during spring break.
Let me first elaborate on (2). The last two years have been incredibly tough for my family. 2020 started with this dreaded pandemic that not just impacted my family but a lot of folks worldwide. But right around this time, we had a family emergency which forced us to plan a sudden trip outside the country at the peak of the pandemic in March 2020. We were lucky to be able to travel and get back into the country before any major travel restrictions were put in place. If that was not enough, in early 2021, the state that I live in had to deal with one of the worst winter storms that it has seen in over a century. This event left us without water and electricity for almost a week in sub-zero temperatures. We were barely recovering from this when we learned of another family emergency which once again forced us to travel outside the country. This was just around the time when the Delta variant was peaking, which made our travel back into the country very eventful again. Towards the end of 2021, we were again faced with the news of another family member needing to go into surgery.
In the midst of all this madness, my family has never had some time off to chill, relax and have a fun trip somewhere. So with spring break around the corner, we decided to go on a nice road trip to a nearby town which is a 2-hour drive from our place. The trip was a lot of fun. What was amazing was that during this break, all the places that we visited were CROWDED. And from what I could tell, I could barely see anyone wearing masks or practicing social distancing. This didn’t hamper our experience. On the contrary, it actually felt nice. It felt…normal for a change.
I will skip talking about (1) during this post, but I will certainly bring it up in a future post on the blog very shortly. This is pretty significant news and deserves a post of its own.
Anyhow, while I have been busy with life, I had actually stopped looking at my portfolio. Actually, I was only getting the notifications regarding the dividend checks and that made my vacation even more enjoyable 🙂 That right there, my friends, is the reason why dividend growth investing strategy works.
That is it for this post. I will be back shortly with another one within the next few days. Take care, stay safe and healthy!
My interactions with the dividend growth investing community have resulted in a few questions that I have had to answer lot more frequently than others. I thought it would be a good idea to document them here for future reference.
FAQ #1: Who are you? What is your name?
The About Me section of this blog is intentionally vague. For instance, I have not given a whole lot of details about me. For instance, my name. Why? Being able share my monthly income updates on the internet is a luxury. But while I do that with full transparency, including my dividend portfolio holdings, I do not want to reveal my real identity because this is the internet and information can get misused. A lot of people that I interacted with found this odd. Their common gripe was, “Well, what do you I call you then? Life With Dividends? LWD? I generally like to call people by their names, this seems odd”. I get it. But if you must, you can refer to me as LWD or Life With Dividends. Perfectly happy with that.
FAQ #2: Why aren’t you more active on social media? I hardly you see on Twitter/<your favorite social media platform here>
I want to limit my social media presence because (a) I honestly do not have the time for it, and (b) I do not find the process very rewarding. (b) is something that I have begun to have a change of heart, especially with Twitter. Twitter can be a powerful medium depending on the people you are following and you get to learn. But I am seeing some patterns that plague the other social media platforms. I touched upon this aspect in my last post, where sometimes I find folks posting tweets to simply gain some comments, likes, seemingly to improve their “visibility”/”clout” on the medium. This is a pattern that I first started seeing on Facebook and now also plagues other platforms like Instagram and YouTube.
The YouTube financial space is migraine-inducing with folks trying to post eye-catching, click-baity thumbnails with facial expressions etc. Their desperation for new subscribers and comments is forcing them to stop talking about “boring stuff” like “dividend growth investing” and promote the latest fad instead. I understand the motivation to make some side income through these mediums, but this is just counter-productive for everyone involved.
I honestly do not care whatsoever about earning income through side-hustles. I would much rather focus my attention towards my regular day-job and be kick-ass at what I do there. The other major half of my time is for my family. And whatever else I have is for my personal interests such as : blogging about dividend growth investing. If I burn myself out in the pursuit of earning income through side-hustles, it will result in compromising my primarily responsibilities, something which I simply cannot afford to do.
FAQ #3: But why blog? That’s so old-school. You should instead start a podcast or YouTube channel
Yes, I contemplated this. But I decided to stick with blogging for some good reasons: (a) I have been a blogger previously. I enjoy this medium to communicate because it helps me articulate better and get my thoughts across more clearly. Writing somehow reinforces my own thought process. (b) I ditched the idea of creating a YouTube channel for the reasons mentioned in the response to FAQ #2. I want some independence in terms of content that I am able to write and publish and do not want a police like the YouTube algorithm governing what is publishable. WordPress, thankfully, does not have these downsides. (c) I thought about launching a podcast, but then my “free” hours are at odd times, after the kid has gone to bed, and cannot afford to create a lot of noise. Writing seemed to fit well with these constraints. Podcast, not so much.
In general though, the world has started to lose patience all too quickly. We prefer short-term for everything: micro-blogging through Twitter, TikTok, YouTube shorts etc. for v-logging, and those habits are also prevalent in investing. I tend to prefer long-term: reading books, reading memos and shareholder letters from top-notch investors etc. Does that make me old-school? I honestly DGAF.
FAQ #4: What got you into dividend growth investing?
Funny story. It was purely accidental. I come from a family background where nobody ever invested anything in the stock market. So I was a complete dud on that front. After graduating from college and starting a job, I earned a lot of RSUs (restricted stock units) through my employer. I was also enrolled in the company’s employee stock purchase plan (ESPP). My company paid out a quarterly dividend. Not much. It was just a token amount. But overtime, through DRIPping, this turned out to be some serious cash. This was a “light bulb” moment for me. What if I could invest money in some companies that did the same and create a parallel “income stream” for myself to supplement my day job. I got to research this idea a little bit and got exposed to the world of dividend growth investing. I had honestly not even imagined that there was a whole community dedicated to this type of investing. I started investing for dividends initially through ETFs around the 2017 time frame and have now gained enough confidence to invest through individual stock picks.
RSUs and ESPPs are a great way to introduce yourself to investing, if you have no background or prior experience with it. You can also use it as a medium to learn more about your own company’s financial health, asking questions during your company meetings etc.
So there you go. If you have more questions, let me know. I am genuinely interested in responding and interacting with each and everyone of my readers.
It is shocking that we are already into the last month of the year 2021. I am so busy with life and work that I am unable to pay attention to everything else that is going on around me. Perhaps it is a sign to take things easy for a change and also not get too bogged down with responsibilities. As I write this, there is news about a new COVID-19 variant called Omicron that is supposedly originating from South Africa. At this point, I have pretty much resigned to the fact that COVID or some other variant of the virus will never go away and we will eventually run out of Greek alphabets trying to identify each variant.
But this post is, thankfully, not going to be discussing about COVID variants. Given that we are heading towards the end of the year and setting sights on 2022, I thought it is good time to look back at my year’s goals, review my progress and set new goals for the coming year.
Goal 1: Write atleast one post per week
Result: Not Achieved.
Maintaining a blog is a lot of work, much more work than one can imagine. Moreover, with a 9-5 job and also a family to take care of, I have very little personal time to do anything else. Why choose blogging then? For one simple reason: I really wanted to get back to writing and penning my thoughts down somewhere. Interestingly, writing helps me in my thought process. It forces me to introspect deeply about the subject. And since I am spending quite a lot of time thinking about retirement, financial independence through dividend growth investing, writing about these subjects would reinforce my own belief system on these subjects.
I kept a very lofty goal of one post per week this year, knowing fully well that I would most likely NOT be able to achieve this given my other responsibilities. But I wanted to try anyway. The pursuit would ensure that I keep writing often.
Although I missed posting every single week, I came pretty close than what I initially though. My average posting frequency was still pretty high for each month.
My second goal this year was to engage meaningfully with the dividend investing community on the blogosphere and also the world wide web, in general. Through this blog and then, additionally, through Twitter, I have been able to reach out to several like-minded investors. Dividend growth investing can be very challenging. It is very common to sometimes lose focus and wonder if this is really is the right strategy. Talking to like-minded investors, listening and learning from their experiences helps immensely. There are so many alternative approaches within the umbrella of dividend growth investing that it helps to listen to counter viewpoints sometimes.
As far as the blogging community, I wanted to be a part of a network of bloggers who would blog on this subject. I learned about Div-Net by sheer accident, as I saw their badge appears on several blogs that I would regularly follow. I am happy that I was able to satisfy their entry criteria for associate membership.
Eventually, I decided to share my progress on my dividend portfolio mostly for my own self and I will continue doing so until it makes sense. If it happens to motivate someone in the process, I will consider that as a huge plus for myself.
I am happy to report that I am well past my stated goal of $1000+ for annual dividend income. Part of my goal when I started this blog was to report my monthly progress here. I thought about this pretty long and hard, because there is technically no reason for me to report my passive income on the internet. In fact, the dividend portfolio that I discuss on this blog is only a small portion of my net worth and I do not plan on disclosing the other portions of net worth.
Goals for Year 2022
I have penned down the following goals for the upcoming year:
Cover atleast 5 investing book reviews
Write alteast one blog post per week
Earn $3000+ in annual dividend income
The first goal will force me to read/re-read investing books that I have been on my “to read” list for a while. There is just no substitute to knowledge gained from reading books on investing, or any other subject for that matter. I have kept this to a reasonable number (5) thereby allowing me to read the book and deeply introspect on the subject matter.
The second goal is a repetition from last time. I want to be able to continue writing regularly on this blog and since I was not able to achieve this goal this year, I will try my best to hit this for the coming year. Fingers crossed.
The third goal also looks pretty aggressive. I have no idea what kind of expenses will hit my wallet in my coming year, so I do not know if I will be achieve a $3000+ figure on annual dividend income. Let us see how I do in that pursuit.
What goals do you have in mind for the upcoming year? Were you able to achieve your goals for the current year? Please let me know in the comments below.
School season has begun here in the US, and as a parent, this usually means busy weekdays. But thankfully, I am going in with an investing strategy specifically catered to this very situation i.e. I can focus on my work and life while my invested capital works in the background to generate more cash.
I mentioned in one of my previous posts regarding how I have been using M1 Finance for my individual brokerage account to manage my dividend portfolio. I have now spent over an year with this firm and I thought it was a good time to sit down and start penning down my thoughts about this brokerage service, things I like about it, things that I don’t quite like as much and looking ahead.
Hopefully, this will serve as a honest review of the brokerage service for someone that is getting started in investing and looking around for a brokerage.
Why did I choose M1 Finance to begin with?
There are plenty of options available to the average retail investor in terms of brokerage services here in the US. Firstly, there are the big-name established brokerage firms that have been around for a long time such as: Vanguard, Fidelity, Charles Schwab, E-Trade etc. Then, there are the relatively newer options such as Robinhood, WeBull, Acorns, M1 Finance etc.
About an year back, I wanted to explore this space a little. I already had exposure to some of the big-name brokerage firms because of some employee-based stock plans, retirement accounts etc. And while these brokerage firms are stable and the services they offer are reliable, the overall experience of investing through them was a little inefficient. For instance, the user-interface (UI) available on the web-portal to the retail investor seems either so dated, or very confusing or just needs some improvement.
In contrast, the new kids-on-the-bloc were offering a refreshing experience in terms of the UI, including better mobile apps, zero-commission fees on trades and also the option of trading with fractional shares. The zero-commission fees on trades, in particular, was a significant game changer and, now, several of the big-name brokerages also offer the same service to the average retail investor. Given that I already had some accounts with the big-name brokerage firms, I decided to give one the newer options a try, and chose M1 Finance based on some initial research.
Another thought that was brewing in my head: While my wife generally has no interest in investments and finance-related matters in general, I did not want to scare here away by using a brokerage whose interface was too verbose, confusing and overwhelming for the first time user. Perhaps, a more beginner-friendly refreshing UI might even ease her into this work, if she wanted to dabble in it for any reason whatsoever.
M1 Finance – quick peek
M1 Finance has a unique approach in terms of how an investor can maintain his/her portfolio. The portfolio is maintained as a “pie”, wherein each pie is a collection of stocks or more pies called “slices”. M1 Finance offers a collection of example pies that the investor can choose from OR the investor is free to build his/her custom pie.
The investor can allocate percentages to each of the “slices” within the pie such that they total to a 100%. The allocations can be changed at any time during the life of the portfolio. When the investor deposits cash into the brokerage account, M1’s algorithm uses the cash to issue trades such that they conform the percentages allocations set by the investor. M1 also offers an “auto-invest” option such that this process can be automated. Whenever a specific allocation percentage goes over the target allocation set by the investor, M1 auto-trading algorithm classifies this slice weighting as overweight and instead invests any new deposited cash towards slice weightings that are underweight.
Trades on M1 can only happen during mornings when the markets open for the day. M1 plus, another tier of membership, offers afternoon trades as well. However, M1 plus membership comes at a cost of $125/year, at the time of writing this post.
M1 offers services such as regular individual brokerage account, Traditional and Roth IRA accounts, custodial accounts, trust accounts etc. They also offer other banking services such as M1 spend (debit card), M1 credit card with 2% cash back that gets automatically reinvested into your investment account, M1 borrow (loans) etc. I have not used any of the other services outside of the investment account.
Excellent user-interface: The user-interface for both the website as well as the mobile APP (I have tried iPhone APP) are phenomenal and refreshingly better than some of the big-name counterparts. I have generally never had any issues with the UI and it has operated reliably during the last one year. It is extremely easy to place a trade and very easy to track portfolio performance using their time-weighted return metric. The landing page of your portfolio typically shows a graph of over portfolio’s total worth since the day it was first created. In addition, it is easy to track how much dividends have been earned during the entire lifetime of the portfolio, or simply doing the last week, month or day. It appears that M1 has eliminated a lot of clutter and kept the user-interface simple for the beginner investor.
Unique approach to portfolio management: The “pie” based view does take a little while to get used to, but once you get it, it is actually a pretty simple way to manage a portfolio. For instance, your portfolio could be based on something like a lazy 3-fund portfolio i.e. three ETFs or index funds: one corresponding to the total stock market, one to the total bond market and one the international stock market with a percentage split for each of the funds. It makes complete sense to have this represented as a “pie” with each “slice” being one of these three funds. It then becomes very easy to which “slice” has grown to be overweight and where you could deposit your capital to ensure that your target allocations are maintained.
Auto-invest: The auto-invest feature is pretty interesting. If I wanted to put my portfolio management into “auto-pilot” mode, I could do so with M1’s auto-invest feature. I would simply need to setup a “auto-deposit” from my banking account such that a fixed amount of cash would be withdrawn each month/week and deposited into my brokerage account. Once the cash lands here, it will be automatically used for trading per the target allocations for each of my stocks/slices. This removes emotion out of the investing and place trades at regular intervals by simply dollar-cost averaging into positions that are underweight.
Fractional shares : I think this particular feature is a game-changer. If I can own a piece of Amazon (ticker: AMZN, trading at $3316 at the time of writing) or Google (ticker: GOOGL, trading at $2828 at the time of writing) with just $50, that is not at all a bad deal. There is a good possibility that I may not have enough capital at a given time to own one share of AMZN or GOOGL. A lot of the big-name counterparts still do not offer fractional shares but this is slowly changing.
Customer Service: The customer service experience with M1 has been a mixed bag. While it was pretty great when I started out with it, there were days when it would be impossible to get a real person to talk to either over the phone or via email. This is a pretty fundamental aspect of a brokerage service. I should be able to reach out and talk to a real person if I have questions about the account, my statements or any feature on the portal.
Moving holding between “pies”/”slices”: This is perhaps the most frustrating aspect of M1 Finance. If you add a stock to a particular “pie”, and invest with that configuration, if you have to move the same stock over to a different “pie”, you cannot do so readily and there is a possibility that the act of doing so will cause you to sell the stock and then re-buy it for the same amount in the new pie configuration. This is not ideal for several reasons: this would change by cost-basis for the stock, and would also be classified as a taxable event. To explain this with an example, say I was interested in investing in Visa (ticker: V), but I placed in a pie called “Finance” and bought 10 shares of V. Say I now wanted to move this holding into a new pie called “Technology” (because Visa can be classified as a Technology company as a well), I would not be able to do so without first selling my shares for V from my “Finance” pie and then re-buying shares worth the same amount in my new “Technology” pie. It appears that people have been requesting this feature since the last few years now, but M1 does not really have a clear answer for this.
Apex clearing house: M1 uses Apex as their clearing firm on the back-end. While this has not turned out to be a huge problem during the last year, I need to open a separate account with Apex clearing to have access to data regarding my portfolio with M1, such as stock trades placed, cost basis etc. I would rather have this data be made available through M1 itself rather than have to go through a second source of information.
FINRA / SIPC: Reputable brokerage firms in the US are all registered members of SIPC and/or FINRA. Per SPIC regulations, M1 Finance can support customer claims of upto $500,000, with $250,000 is cash claims. While M1, through their Apex clearing house, claims to have additional insurance over SIPC coverage, it is not clear if it would be a safe option to maintain your assets with this firm if and when your portfolio exceeds this amount. In comparison, the big-name brokerage firms have been around for a lot more longer and are more reputable and trust-worthy for larger portfolios.
Trading windows: As things stand, M1 only allows you to trade stocks at one (two if using M1 plus) time during the day. And this is early in the morning when markets open up. This clearly means that M1 is NOT suitable for day-trading. This is not such a huge deal for me, since I am a long-term investor, Having said that, I would like to have the flexibility to buy stocks when I please or when I sense an opportunity at any stage during the day when the markets are open. I would like decide for myself when to buy or sell a stock rather than have a restriction imposed on me due to my brokerage service.
I am pretty happy with trying out M1 for a year, but I think the time has come to move my investing journey over to a different brokerage due to the cons I have listed above. At present, Fidelity seems to be offering a good option for a move. They are a firm that has been around for a really long time. So I will have absolutely no concerns about insurance coverage for my assets if it grows into a large value. They have recently updated their user-interface to catch up to the modern age, offer fractional shares (atleast through their mobile app) etc.
Eventually, I would also like to begin trading options to supplement my monthly dividend income. M1 does not offer this option at present, and Fidelity does.
The transfer of assets from M1 will result in a taxable event, since the existing fractional shares will not be transferred and would have to be sold. But this is not so much of a concern for me since this move is the right thing to do from a long-term perspective.
I might return back to M1 Finance for a new account if things improve and if they have actively worked on some of my concerns listed above.
Until next time…
Disclosure: Long V, No positions in AMZN, GOOGL in my dividend portfolio.