M1 Finance Rebalancing Explained

so today we're gonna be talking about m1 finance and how to rebalance your portfolio as well as a what rebalancing really does to your overall account now in case you're new here my name is Dennis and I love talking about financial apps and services to help you build wealth and I absolutely love and one finance and I've been using it for well over a year so let's go ahead and jump into my portfolio and not waste any time on this rebalancing question so what we're gonna do is first talk about why rebalancing is on there and what m1 finance actually does overall as a platform and how it really benefits you as an investor so for me personally I love m1 finance because I am a long-term dividend investor and it really plays to the strengths that I have when it comes to knowing how to invest now there's many different ways to invest inside the market but the way I like to invest and when finance really does help me out so m1 finance has this thing called dynamic rebalancing and what that means is it really kind of caters to making sure that it has everything set in place based off of what you said in place prior for the money to be allocated to this portfolio and I'll show you what I mean by this in case that sounds a little confusing so when you look on m1 Finance you're gonna see an actual and a target and what those are percentages of what you would like this personal PI or funds or stocks to actually be invested in and now for me personally on m1 finance I built what they call slices of pies so that way I can have all of my stocks grouped up together base how I would like them so some people have all their stocks together so it's not gonna be as organized as this and that's totally fine to you if all your stocks are just all displayed at once just makes it a little bit more interesting when it comes to rebalancing so what I'm going to show you guys here is my tech pie so first and foremost this is a pie and it has different stocks inside of it now for me I have the actual percentage at 21.8% and my goal that I would like am on finances to keep it at is 22% so that means when I make deposits every single time I make deposits m1 finance will look at the different pie sections that are under their target and that's what a percentage of the money is going to go so as a quick example if we look down here in the health section over here we're gonna see that the actual percentage is 5.1 percent and then the target is five percent so this is essentially over its target so this will get allocated almost nothing too very little amount of money in my next deposit and then it goes one step deeper when we actually click into these PI's so I'm gonna click inside this tech PI right over here and we're gonna go ahead and see that this pi is made up of a couple of different stocks so I got one two three four five six stocks right and so each one of these stocks actually has an actual and a target percentage as well so we can see here 18 t has a 26% actual and a 24 percent target so if you haven't guessed already that means it is over its target and m1 financed will even tell you here in this little circle you'll see here where it says overweight so that way it can tell right away that this has more money than you originally allocated based off its percentage so when that money comes into this pie right over here my tech pie the chances of it going into 18 t are gonna be fairly low but the more likelihood it's gonna go into Microsoft it looks like a little bit of Apple and some Verizon as well as Texas Instrument and Cisco over here so all of these stocks right over here are definitely undervalued we're eighteen t is the only one overvalued so what that is telling m1 finance is hey when this money gets put into the tech pie based off of that percentage the rest of that money is going to be split up into these different funds based off of what is over and under now in case you're curious on how you can still invest into individual stocks because maybe you want to dollar cause average in there or whatever the case without having to always be switching up the percentages I'm gonna have a video in the show notes down below where you can learn how to buy into just individual stocks and pies as well and I'll have it also here at the end too so make sure you stick around for that now what we're gonna do is talk a little bit about this overall rebalancing button so what happens is because m1 finance does dynamic rebalancing which means that it is always trying to make sure that it is currently based off of your actual targets and where the actual percentages are every deposit will flow in the way it's kind of set up for you now what the rebalancing does if you click on it it's going to tell you right over here says during the next trade window and one will buy underweight slices and sell overweight slices to bring your pie back to its target you can learn more if you wanted to and then you can click on the confirm if you would like to do that now one quick side note when it comes to rebalancing is that this can trigger taxable events now one thing to keep in mind is that I am NOT a CPA as well as not your advisor but when it comes to rebalancing if you are selling off stocks that can trigger some taxable events whether you have gains or losses during that transaction now what this means is when you click that rebalance what it will do here is it's going to look for the different pies that are over their value and then sell some of those stocks in there so that way you can bring this as close to five as an example for this one and that we can reallocate those funds into different sections that are under their target so another example here for us as well too if we look our financial sector is well over its target at fourteen point two percent so when we click that rebalance button and confirm that next day there's a really good chance that it's going to go ahead and cancel out some of these different funds in here as far as selling off a little bit of the shares not all of it don't worry about that it won't sell all of it a little bit of these shares and then that money will get reallocated into some of the tech PI some of the vo o fund here and then any other fun like this consumer products that is well under its target now these funds are pretty close and accurate where they're not too far off from one another so the chances of doing the rebalance and having it be effective is not going to be that great you can see here that my actual PI is kind of in a nice organized order where if you have something overvalued or undervalued you're gonna see a kind of different thing here and I did one here for us just to give you an example if I go into my retail PI you're gonna see this pie looks a little different and you can see one sticking out here Disney and that's because I changed the percentage to be overvalued based off of the target that I would like it to have so currently it is twenty one point four percent of this current pie but I would like it to be at five percent so effectively if I hit the rebalance button just in this pie it's only gonna buy and sell in this section by itself versus if I do the buy and sell on the overall portfolio so there are differences in ways you can rebalance if you wanted to but the other thing to consider too if we go back into this retail pile if I don't click the rebalance button what this is gonna have happen for this pie in particular is every time I'm depositing money into my overall m1 Finance account and money gets put into this retail pie Disney is probably not gonna get anything for a good while until this gets closer enough to the point where it is close to its actual target percentage so you'll be able to see over time as you keep investing that less will go into Disney and more will go into everything else so if you don't want that to happen if you don't want to wait that long and you want that money to kind of be dispersed between everything go ahead and click that rebalance button but again keep in mind about those taxable events that do occur by clicking that button and having everything go through now there is no limit when it comes to actually clicking on this rebalance button on the portfolio but again because you are trying to set things up for kind of like a long-term investment you don't really want to be clicking that button to auction because rebalancing your portfolio is going to be a little bit cumbersome if you constantly are doing it weekend week out versus just kind of switching over your percentages and then letting your deposits come through and kind of get dispersed among your actual portfolio I think long-term and also the way m1 finance kind of works out for you it's actually gonna be better for you to just kind of let m1 do its thing and do its dynamic rebalancing just on the back end of your deposits now as I mentioned earlier if you're curious on how to buy individual stocks or maybe different PI's within your overall portfolio I want you to check out my video right over here to learn how to go ahead and do that thank you so much for watching it and I will see you in that next video

Channel: TruFinancials

Views: 8,102

Rating: 4.9130435 out of 5

Keywords: m1 finance rebalancing, m1 finance rebalance, m1 finance dynamic rebalancing

Id: m2efxLNj1cU

Length: 8min 17sec (497 seconds)

Published: Thu Jun 18 2020