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Automating Your Investments with Robinhood & M1 Finance

The 8th wonder of the world…


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Jovan Hernandez

3 years ago | 6 min read

Robinhood and M1 Finance Automation

Earlier this year I wrote about the 3 main disruptive trading platforms most Millenials are using. You can learn more about those platforms by reading the earlier post.

What I want to focus on here are the major changes Robinhood has implemented since my last post, and where Robinhood stacks up against M1 Finance and WeBull amongst my favorite brokers.

For this particular topic, WeBull is, unfortunately, lacking in both automated investments and fractional shares. If your goal is for automated investments, then don’t bother. WeBull as a trading platform with tools meant for day trading and leveraging your 4X buying power.

Note: I think this goes without saying, none of this should be considered “professional financial advice”, and what works for me, may not work for you. Take parts of my strategy and implement them into your own strategy, but at your own risk.

Why automate your investing?

Checking stocks daily can lead to irrational decisions such as selling during downturns — pic: Austin Distel

To become a great investor, you need to implement a rules-based system. Rules and systems are necessary for all investors, not just beginners. Without systems, the world would be in chaos. The same goes for your finances.

I remember when I would try to time the bottom of markets while also day trading the most active stocks. I’d spend hours every morning before the bell looking for the right plays, and hours after the bell trying to figure out how I missed all my plays I was looking for. This led to a lot of frustrated buying high and selling low while chasing stocks with major FOMO.

While investing, or really making any decisions involving money, we want to eliminate any emotion from the process. I’ve learned the best way to counter my emotions while investing is by taking the decision process out of the entire equation.

The 8th wonder of the world…

Einstein is credited for saying “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”

Dollar-cost averaging has been my investing strategy for building positions over time and cutting-out 90% of my decision process.

By picking good companies with a winning strategy and strong financial fundamentals, you can focus more of your time on actual financial research, and less on technical indicators and tweaking stock scanners.

Microsoft is one of my favorite holdings and continues to look strong into the future

I feel much better investing $20 a week in Microsoft and Apple than I do try to time the market by finding the bottom and investing $5000 in any given stock, only to watch it go down a few minutes later. Now I’m kicking myself for not having found the bottom and I get to stare at a red balance for weeks.

Sound familiar? Let’s look at a real-world example to fully grasp the benefits of dollar-cost averaging and compounding interest.

Watering your plants…

Think of your portfolio like a garden and stocks like your plants. It’s not over just cause you planted your seeds. You need to water your investments to watch them grow over time.

Scheduling recurring deposits or investments cushions you from buying high and never buying low.

Don’t be like Joe

Meet Joe. Joe’s a 30-year-old professional with $10,000 worth of $XYZ Paper Company. $XYZ Paper Company has been earning 10% return year over year.

At the end of year 1, Joe’s portfolio now stands at $11,000. Solid gains from $XYZ Paper Company. After 10 years, Joe’s portfolio hit $25,937.42.

After 25 years, Joe’s initial investment of $10,000 finally cracks 6 figures at $108,347.06. That’s a nice chunk of change, but unfortunately, Joe forgot to water his plants and missed out on tons of gains.

Be like Baxter

Now meet Baxter. Baxter’s a dog, and since he just sits at home all day, he gets to read a lot. He’s somewhat of a financial literary genius, but a dog.

Good boi investor

Anyways, Baxter also likes $XYZ Paper Company and also wants to invest $10,000 on the same day Joe purchases his shares. The thing is, Baxter was smart and set up an automated monthly purchase of $XYZ Paper Company of $100.

At the end of year 1, Baxter’s portfolio now stands at $12,264.05. Year 10, Baxter is sitting around $46,083.18.

Baxter crosses the six-figure portfolio mark at year 17, with $101,795.38. That’s 7 years faster than Joe, just by investing $100 monthly into the same position.

At year 25, Baxter’s hitting $253,253, while Joe is wishing he took that $100 a month he uses to buy pot and put it into investments.

Water your plants and watch them grow.

How do I start?

If you’re a traditional investor and have experience with 401k’s, M1 Finance’s approach to investing may be more suited for you. It’s fully automat.ed with a set-it and forget-it attitude.

If you prefer to have more granular control of your investments, such as day and swing trading Robinhood is probably better for you (although that defeats the purpose of automation.)

M1 Finance

Automated investing in action — Courtesy M1 Finance

M1 Finance was the clear choice for dollar-cost averaging investors. M1 allows investors to create a custom portfolio, and schedule automated payments to my account.

The magic with M1 Finance was the auto-investing feature that took any dividends or deposits you had automatically scheduled and rebalances your portfolio by purchasing your most underweight stocks.

For even more control, M1 has a re-balance button that finds your most over-weight stocks, shells excess shares, and purchases shares of your underweight stocks.

I could try and explain it further, but it’s best to get it straight from the horse's mouth. Click here to learn how M1 Finance Automates Trades.

Robinhood

Robinhood's version of automated investing — Courtesy Robinhood

Robinhood earlier this year introduced DRIP, or a Dividend Re-Investment Plan. Basically any companies you own that pay you dividends will then take those dividends and purchase more shares of that same company.

This is a fairly common and traditional setting that nearly all major retail brokers offered, but Robinhood was missing.

Robinhood didn’t stop there. Just this week they introduced scheduled Recurring Investments. These recurring investments work a little differently than M1 Finance, so it’s important to figure out your strategy and how you want to approach things.

With Robinhood, you set a scheduled reoccurring purchase on one particular stock/company/ETF. This is great if you want to hone in and dollar-cast average on one or two specific stocks and don’t care about diversification.

With M1 Finance, you schedule a recurring deposit and M1 Fiance’s automated investment and rebalancing tools do the work for you buy purchasing underweight shares with deposits or rebalancing with your overweight positions.

Conclusion

Getting started in investing can be pretty daunting. That’s why eliminating the guesswork of when to buy and timing the market is the best path for any beginner investors.

At the end of the day, you don’t need to live in a world where you stick to just one broker. I use all three brokers, Robinhood, M1 Finance, and WeBull, all for separate purposes and strategies. My breakdown is as follows:

Robinhood

Scheduled (weekly) recurring investments into companies with strong balance sheets and great moats, with a mix of cloud and innovative plays I have strong conviction in. DRIP enabled for maximum compounding.

Click here for a free stock on Robinhood and to get started.

M1 Finance

Scheduled (weekly) recurring investments into my Dividend Growth Fund and my Cloud SaaS Fund. Auto-invest turned on for both funds for maximum compounding.

My Dividend Growth Fund which focuses on Blue Chips with GT 1% yield.

My Cloud/SaaS Fund focusing on tech start-ups, cloud, and SaaS plays.

Fidelity 401k

This one is extra with a caveat but important to list too. Take advantage of any matching 401K plans your company offers. Make sure to max it to at least gain for the match. This is free money going straight into your investments.

This article was originally published by Jovan Hernandez on medium.

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Jovan Hernandez

Florida man, cloud engineer, trader and investor


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