We believe the best approach to any long term investment strategy is discipline and diversification. Our M1 Finance Portfolio is very well diversified, having multiple assets that span the entire globe. This approach makes our portfolio safer and less volatile over a long period of time. Knowing their portfolio is specifically designed to provide optimal performance over the long term helps the investor stay more focused and disciplined in their investing strategy. The Exchange Traded Funds (ETFs) we selected for our portfolio are among the best in the industry with great performance records and rock bottom expense fees.
M1 Finance Portfolio ETF Choices
US Equities Portfolio
- Vanguard Total Stock Market (VTI: 32% Allocation) – This is the M1 Finance Portfolio Cornerstone Fund that was chosen for its stellar performance record and incredibly low expense fee. This fund is known for beating the S&P500 consistently over the long term while only charging a tiny 0.04% expense fee. This ETF provides exposure to the entire US stock market using a market cap approach. This means the majority of your funds are invested into well-known large cap stocks such as Apple, Microsoft, Google, Facebook, Johnson & Johnson, and Procter & Gamble. But this fund also allocates part of your investment into lesser known Mid and Small Cap stocks which help to diversify across the entire US stock market. The higher risk mid and small cap companies have proven to give this fund a great boost that generally allows it to outperform on a regular basis. (Market capitalization or “market cap” is the total market value of a company’s outstanding shares; defined as equal to the number of the company’s outstanding shares times the price of an individual share. Market capitalization is used by the investment community in ranking the size of companies, as opposed to sales or total asset figures.)
- Vanguard Dividend Appreciation (VIG: 8% Allocation) – One of the greatest things to see as a stock investor, is the wonderful dividends you receive every month. Even when the market is going down, you can always rely on your stable dividend growth stocks to keep those delicious dividends pouring in. This fund focuses on investing in companies that have a long track record of paying dividends and also consistently showing dividend payout growth. Companies offering Dividend Growth Stocks are usually considered very stable with above-average balance sheets which allow them to continually reward their investors with growing dividends. Adding these relatively safer assets to your M1 Finance Portfolio usually means they will weather through market downturns better than portfolios without Dividend Growth Stocks.
International Developed Equities
- Vanguard Developed Markets (VEA: 20.8% Allocation) – Just as we had a cornerstone fund for our US Equities, the M1 Finance Portfolio uses this fund for our primary exposure to International Developed Markets. This fund also uses a market cap allocation approach investing most of your funds into large cap stocks while still gaining some exposure to mid and small cap stocks. The ETF gives us exposure to all the other developed nations of the world such as the UK, Germany, Canada, and Japan to name just a few. As the world continues to globalize and everyone becomes more financially connected, you need to think more broadly about where to invest your money. This is a great fund for gaining exposure to these markets.
- Vanguard International Dividend Appreciation (VIGI: 5.2% Allocation) – This is our International Dividend Growth fund we use in our M1 Finance Portfolio. We use this fund for the exact same reasons we selected the US version above. Dividend growth companies have historically proven to outperform during stressful market conditions. These companies tend to be the biggest names in their industry with proven track records of weathering previous recessions and market turbulence. This is a great fund for gaining additional exposure to International Blue Chip Stocks which pay out nice dividends and add stability to your portfolio.
- Vanguard Emerging Markets (VWO: 11.2% Allocation) – Over the next few decades, we may see the Emerging Markets of the world outperform every other market. The increasingly fast pace at which the world is growing, with technology expanding quicker than ever into remote areas of the world, these markets have far more growth potential. However, even though it is very likely these Emerging Markets will shine the brightest in the future, they also tend to be more volatile with large gains and losses. The allocation percentage we have assigned to Emerging Market Stocks allows us to gain a boost from their growth potential while still maintaining lower volatility.
- WisdomTree Emerging Markets Quality Dividend Growth (DGRE: 2.8% Allocation) – The Dividend Growth fund we chose for the Emerging Markets section of the M1 Finance Portfolio was created by WisdomTree. We are big fans of the Vanguard funds for their excellent performance and incredibly low fees, but they did not have an ETF available to fill this void. After researching a few different Emerging Market Dividend funds, I selected WisdomTree because of their fundamental screening method to choose the companies for this ETF. Not only do the companies have to pay consistent dividends, but they are also screened for potential growth prospects in their respective industries. Unlike its Vanguard counterparts, this fund is not as concerned about companies growing their dividends; rather instead it looks for capital growth opportunities. This more advanced screening method results in a much higher expense fee than the Vanguard funds, but we believe the added diversification into Emerging Market Dividend Growth stocks is worth the extra expense.
- Vanguard Total Bond Market (BND: 5.4% Allocation) – Having some exposure to debt securities or bonds is always a good idea when you’re trying to build a well-rounded portfolio. This particular fund is one of the simplest ways to gain exposure to the entire US bond market; making this an ideal choice for the M1 Finance Portfolio. This ETF includes government and corporate bonds spread across short, mid, and long term durations. In our opinion, this is one of the best US bond funds available on the market today. If we could only select one bond fund, this would be the one we would choose.
- Vanguard Total International Bond Market (BNDX: 4.2% Allocation) – This ETF provides exposure to government and corporate bonds from international developed markets. This is just another great way to diversify our bond portfolio outside the US and gain from the economic growth of other developed nations. Most of the debt securities chosen for this fund have proven very stable with consistent payments every month.
- Vanguard Emerging Markets Government Bonds (VWOB: 1.8% Allocation) – The higher-risk emerging market economies tend to also have higher default rates on their debt; which is why these bonds have a much higher yield than developed nation bonds. Reasoning higher risk comes higher rewards, we wanted to add a small allocation to emerging market bonds. The high yield alone can sometimes balance out any capital losses, but when you benefit from both capital gains and high yield payments, you’ll be happy you added these bonds.
- SPDR Short Term High Yield Bonds (SJNK: 0.6% Allocation) – We also added a very small allocation to Short Term High Yield Bonds for their incredibly high yield payments. Even though these bonds have a much higher default rate, the huge yield that you earn from this ETF usually makes up for any losses. Just as we mentioned for the Emerging Market Bonds, these High Yield Bonds really shine when the market decides to give them a capital boost on top of their high yield payouts.
Global Real Estate
- Vanguard US Real Estate (VNQ: 4.8% Allocation) – So many people want to invest in Real Estate after seeing all the fortunes made using this asset class. But as we saw during the financial crisis of 2008, even the real estate market can have major downturns. However, the Real Estate market is here to stay and there are still great fortunes to be made. This is why we added exposure to our M1 Finance Portfolio using Vanguard’s US Real Estate Investment Trust ETF. This fund allows us to invest in various real estate markets including residential, commercial, medical, senior living facilities, technology facilities like server farms, etc.. Since Real Estate Investment Trusts are highly regulated and are required to pay 90% of their profits to their investors, this fund also has a very nice dividend reward as well.
- Vanguard International Real Estate (VNQI: 3.2% Allocation) – Since people all over the world need to have places to live, work, and operate their businesses, why would we want to limit our Real Estate exposure to only the United States? That is exactly why we decided to add in Vanguard’s International Real Estate ETF. Now we can gain the same type of Real Estate exposure from all across the world giving us even higher upside potential and fantastic dividend payments.