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[Katherine] How has automated investing changed investing over the past five years? Brian Barnes, CEO of M1 Finance, breaks it down for us.
- [Brian] So, thanks for having me. If you look at just the most generalized use case for investing, most people want to deposit money with their paycheck twice a month, every two weeks. And automated investing lets you do that systematically. It lets you put the money to work so that it can earn money for you, as opposed to just sit idle in the bank.
- [Katherine] Okay, and how does automated investing aid younger audiences, such as millennials who might be too fearful to take a chance and invest otherwise?
- [Brian] Yeah, so, if you don't have automated investing, the alternative is to do everything yourself. You have to do every input manually. And so, that consists of getting money as a direct deposit into your checking account, transferring it over to a brokerage account, waiting for it to settle, placing the trades, clicking a button, getting charged $7, $8 for a commission. With automated investing, it really lets you say, "Here's what I wanna own." You can have portfolios that are constructed for you, so you can leverage the advice of experts, and just systematically deploy money into it every two weeks with your paycheck, once a month, whatever it may be. And the nice thing that these automated platforms are doing is they're making it so that we're using things like fractional share. So 100% of your money goes to work in the investments you want, rather than just sitting idle in cash in the brokerage account. So your money's always deployed and working for you.
- [Katherine] You've been investing since you were eight years old, which is crazy to me. But, what have you learned?
- [Brian]A lot, probably more from my failures than from my successes. But for 10 years, it was under the purview of my parents. Got access to a brokerage account. Really understood the value of just general ownership. So, when you have an ownership stake in the company, that company is trying as hard as it possibly can to have a good return on your capital and you benefit by having the equity ownership stake in that. And money working for you is just infinitely better than sitting idle. And so, the automated investing is just, "How can we make that easier for your money to get deployed so that it can work for you cheaper, more conveniently, and less expensively?"
- [Katherine] Do you have any tips for other young investors?
- [Brian] Get involved earlier than you might even feel comfortable getting involved. The nice thing ... it's almost a benefit when you're young, that if you make mistakes, it's not with giant sums of money. So, the worst thing that can possibly happen is you wait 20 years, you're now having a sizable nest egg that you're managing. You're making mistakes with that, which is more catastrophic, and you didn't use the past 20 years to learn what you should be doing, learn that some things ... you know, sometimes the market goes down and it's out of your control, and not to overreact or sort of how things ebb and flow. And so, it's really, get involved, put your money to work, and just be invested at all times.
- [Katherine] Is there something that you wish you were taught about investing?
- [Brian] I've been investing since I was eight years old. I'm learning about investing as I go every single day. And so, I don't think that there is a be-all, end-all solution to investing. There's no sort of final rung, where it's, "Okay, I've learned everything there is to know." I think that the interesting thing in the investing world is, you can get a world-class portfolio by just using two, three ETFs, putting it to work, and getting market returns. And by keeping costs low, you're just gonna perform better than average over the long term. And so, it's a sort of paradoxical thing. Doing very little, you can perform above average. And then, as you, for whatever reasons, if your needs change, if your wants change, you may deviate from the average and move into your own nuanced perspective. But it's a constant learning game.
- [Katherine] Your company competes against companies such as Robinhood and Acorns. How do you set yourself apart from them?
- [Brian] Yeah, so I think we set ourselves apart in a couple different ways. So, the first is how we actually invest the money. And so, most brokerages, you're going in, you're placing trades. Some of the robo-advisors are going in and putting it in a portfolio that they've constructed for you. M1 is all about constructing the portfolio that you want. You're specifying what share of your money goes into what investment. We have a bunch of pre-populated portfolios available for you that you can grab and use in your own portfolio. But it's really customized to your heart's content, and if you're not comfortable, you have options. Once that portfolio is constructed, we're automating it. So you're not going in and placing trades, you're just going in and saying, "I want $500 to flow into this portfolio." We're then automating that and having the $500 flow into that custom portfolio that you've designed, using fractional shares, so all of the money goes to work. One of the other big benefits is, we're 100% free, so we don't charge a commission, we don't charge a management fee. So 100% of your money is working in the investments you want with no commissions. And then, we do offer a product called M1 Borrow, and it's using your portfolio as a line of credit, so you collateralize a loan and get access to really low-cost credit. And so, it gives you flexibility with your money that you don't have on these other platforms.
- [Katherine] When I was doing research, I saw that you guys kind of allow investors to choose what kind of investments they want to do, which is kind of different than Acorns and Robinhood, and correct me if I'm wrong there. But, I'm wondering how that helps to teach consumers who may not know how to invest to invest.
- [Brian] Yep, for sure. So, going back to the, you can get a world-class portfolio with three ETFs. There's a whole notion of passive investing, and that will do well for a vast majority of people. The downside is, it's boring. It's frankly just not exciting. People don't watch TheStreet, they don't go to Seeking Alpha. They don't go to Yahoo! Finance and research stocks to find what the International Bond Index is doing. And so, actually choosing your investments creates an ownership and engagement that you just don't see if you sort of throw your money over the wall and hope that it's managed intelligently. And so, what M1 allows you to do, is you can say, "I want 80% of my money in this passive portfolio, but 20%, I want it to be in my stock picks, because I might find them undervalued. I might like their product." Whatever reason that you have. And what we see is when people log in, the only thing they check is the 20% that they selected. And so, it creates an ownership and engagement and a learning factor that ... people care about their money pretty considerably, and having a say in where it's deployed matters quite a bit to people.
- [Katherine] Sounds like a great teaching experience. All right, Brian, thank you so much for joining me.
- [Brian] Thanks for having me.

Looking to invest, but afraid to pick stocks?

Automated investing may be the answer. 

Brian Barnes, CEO of M1 Finance--a free automated investing website--sat down with TheStreet to discuss the outlook of the investing landscape and how his company is working to educate younger investors.

"If you don't have automated investing, the alternative is to do everything yourself. You have to do every input manually. And so, that consists of getting money as a direct deposit into your checking account, transferring it over to a brokerage account, waiting for it to settle, placing the trades, clicking a button, getting charged $7, $8 for a commission. With automated investing, it really lets you say, "Here's what I wanna own." You can have portfolios that are constructed for you, so you can leverage the advice of experts, and just systematically deploy money into it every two weeks with your paycheck, once a month, whatever it may be," said Barnes. "And the nice thing that these automated platforms are doing is they're making it so that we're using things like fractional share. So 100% of your money goes to work in the investments you want, rather than just sitting idle in cash in the brokerage account. So your money's always deployed and working for you."