I’m always on the hunt for my next credit card, and this is one I can’t wait to get
my hands on.
The investing platform M1 Finance is releasing what they’re calling the owner’s rewards
card, which pays up to 10% cash back when you spend
at companies that you also invest in.
I’m super fascinated by the idea of integrating credit cards and credit card rewards with
an investment portfolio, and with cash back rates that high, I knew I had to take a closer
look.
So in this video, we’re taking a deep dive into the M1 Finance Owner’s Rewards Card.
We’ll start with covering the basic fees and eligibility requirements to get the boring
stuff out of the way.
Then, we’ll take a look at the generous cash back rewards that you can get by using
this card, which range from 1.5% back up to 10% back.
As I said, these rewards are earned when you spend your money at companies you also invest
in.
This means you will have to hold particular stocks within your portfolio in order to receive
the associated cash back rewards.
There are over 50 companies involved here, and since you’ll have to hold all of them
to maximize your cash back, I thought it’d be fun to put them all together and assess
the quality of the portfolio from a long-term investing standpoint.
Finally, we’ll consider all the pros and cons to determine whether this unique investing
credit card is worth having.
Let’s get started!
As a quick disclaimer, this credit card is not out yet and things may change before it
releases.
I want to specifically highlight that the advertised cash back rates and the companies
involved may change in the future.
You can always check m1finance.com for the latest details, and I’ll be sure to leave
a comment below if I catch wind of anything.
But let’s get into the details of this card, starting with the fees.
There are two different fees depending on what kind of account you have with M1 Finance.
If you have a standard, free M1 Finance account, this card will come with a $95 annual fee.
Of course, this means you do need an M1 Finance account to use this card, and I’ll talk
more on that later.
However, this annual fee is completely waived if you are an M1 Plus member.
M1 Plus is a premium annual membership that usually runs at $125 per year.
So that means you either pay $95 for the card alone, or $125 for the card and an M1 Plus
membership.
It should be noted that M1 Finance offers the first year of M1 Plus for free, so you
can try out this credit card and all the other perks for 12 months without spending a cent.
In addition to eliminating the annual credit card fee, M1 Plus gives you benefits like
borrowing at an extremely competitive 2% interest rate, earning 1% APY on checking account balances
and some other M1 Finance perks.
This premium membership may not be for everybody, but I will say they’ve been aggressively
adding to their M1 Plus features over the last several months, and I’m sure they’ll
continue to do so.
Plus, the free trial for the first year is a pretty great way to test it out and get
the credit card fee waived.
But we’ll consider which of these options make the most sense after taking a look at
the other credit card features.
And that starts with the massive cash back rewards, at up to 10% cash back.
Just to reiterate, the cash back rewards are tied to the stocks you own in your investing
portfolio.
These cash back rewards rates will vary depending on the company, so you’ll get different
rates depending on where you’re spending.
Each eligible company will fall into one of three different rewards tiers: 2.5% back,
5% back and 10% back.
If you spend anywhere else, you will earn an unlimited 1.5% back on each dollar spent.
This unlimited 1.5% back is decent but not unheard of, and at the very least puts this
card above those that offer just 1% back.
But let’s take a closer look at each of the cash back rewards tiers.
Starting with the 10% cash back businesses, we’ve got a lot of big names.
For starters, I’m happy to see streaming platforms like Netflix and Spotify, because
10% back on those is already a couple dollars off of those monthly subscriptions, which
for many people are long-term recurring expenses.
As someone who works online, it’s also cool to see DropBox and Adobe, both of which I
use all the time for personal and business projects.
Again, 10% off these monthly subscriptions is worth at least several dollars.
Chewy is a big one here for pet owners, and one that might pay for the card itself if
you are regularly buying food or anything else for your pet.
We’ve also got brands like Purple, Wayfair and Peloton, which I think is significant
because the purchases you make here are likely going to be significant.
Furniture, mattresses and workout equipment are very expensive, so again, one of these
purchases with 10% cash back could instantly cover the cost of the card or M1 Plus.
You’ve also got some meme stocks here with AMC and GameStop, which is an interesting
choice we’ll dive into more in a few minutes.
But overall, this 10% category offers some highly competitive cash back for common monthly
subscriptions and big ticket purchases.
If you use these correctly, the card will definitely be worth it.
Next we’ve got the 5% cash back tier.
The first thing that sticks out to me is all of the different airlines, which makes this
look pretty good as a travel credit card.
In my experience, travel credit cards often limit you to a single airline, and then make
it really difficult to redeem miles and rewards for flights or anything else.
With the M1 owners card, you can get 5% back on all airlines and then have simple cash
back rewards to spend instead of miles.
I also want to highlight Etsy, UPS and FedEx, which I don’t personally spend much at,
but might be worth noting for online businesses.
For example, if you run an Etsy store where you purchase ads on the platform and ship
products to people, these rewards could make a significant difference in your profit margins.
I also personally go to both Starbucks and Chipotle at least once a month, so getting
5% back at these locations is a significant benefit for me.
Again, the standout feature for me within the 5% tier is all the travel rewards, which
I think makes this card a better option than most other travel credit cards.
This card’s potential as a travel credit card is even stronger with the 2.5% back category,
so let’s take a look at what we’ve got there.
This category in particular seems geared towards consumer brands, with big names in groceries,
fast food and online shopping.
For starters, rounding out the travel benefits, we have AirBnB, Lyft and Uber, which together
could cover all of the biggest travel expenses after airlines.
You have most large cell phone providers, which can help you save on those recurring
monthly expenses.
You also have several grocery options, including Whole Foods, Target, Walmart, Costco and Sam’s
Club.
Groceries are one of my largest expenses, so 2.5% back here could be pretty substantial.
You can even buy gas at some of these stores, which makes this card a pretty solid option
for grocery and gas cash back, as most other cards in this category offer around 3% cash
back at most.
Finally, this tier encompasses most general purchases between Target, eBay, Amazon and
Walmart, so I think it’d be easy to intentionally spend at these locations and get 2.5% cash
back on a variety of purchases.
Overall, I think the M1 Finance owner’s card checks a lot of boxes.
It may not excel in a single spending category, but most cards that do require you to jump
through lots of hoops and don’t give you any decent rewards elsewhere.
From my perspective, the M1 Finance owner’s card looks to be a really well-rounded card
with substantial cash back potential in many categories.
You’re essentially getting 2.5% back on groceries, potentially gas and anything else
you can buy from the retail giants.
You’re also getting up to 5% back on travel and select dining.
The 10% category might be a little tougher to take advantage of, but it’s still substantial
for streaming, pet-owners and a few big purchasing categories.
My one and only concern at this point is whether they will cap the cash back at a certain dollar
amount each month.
There are plenty of cards that do this with certain offers, and this could certainly limit
the potential of the M1 Finance Owner’s card.
So fingers crossed that this isn’t the case here, but we’ll see what happens when the
card rolls out.
Of course, the other side to this credit card that we need to discuss is the investing portfolio.
Again, to get the cash back rewards we just covered, you have to hold the stock of the
company you’re spending at.
So you really have two options: the first is that you only invest in the stocks where
you want cash back.
If you know for sure you won’t spend at some of the eligible companies here, then
you don’t need to waste your time adding them to your portfolio.
Plus, you may not actually want to invest in all of the eligible companies.
Whatever your reason is, I’ll leave the stock selection up to you.
However, the second option is to hold every single one of the eligible stocks within your
portfolio.
I’m going to choose this option and walk through this portfolio for a few reasons.
For starters, I can take advantage of every single cash back reward without worrying about
whether I have the right stock in my portfolio.
Although I’m sure there’s a few brands on this list I will never shop at, choosing
all of them is simpler than handpicking and trying to figure out which ones I’ll actually
use.
Next, M1 Finance makes it really easy to integrate all of these holdings into a portfolio without
having to allocate a ton of money to it.
As someone focused on passive investing, I don’t want to spend time picking stocks
and managing a portfolio.
And more importantly, I don’t want to throw off my long-term investing portfolio just
to get cash back.
The solution is to make a custom investing pie with all 51 cash back-eligible companies.
Then, I can add this entire pie to my investing portfolio and allocate as little as 1% to
the entire pie.
By doing this, I can maintain eligibility for every cash back reward without significantly
altering my investment strategy.
Finally, I’m intrigued by the potential performance of a portfolio driven by these
cash back rewards.
Again, I don’t want it to make up a large part of my portfolio, but I think it’ll
be fun to track over time.
M1 Finance has included some of the most recognizable brands, bringing exposure to software, tech,
airlines, communication services, retail and even a dash of meme stocks.
I’m interested to see if M1 Finance has somehow given us a diversified portfolio that
will actually be a decent long-term investment.
But to assess this, we have to take a look at its characteristics.
Here, I’ve created an investing pie with all 51 cash back companies.
I played with the idea of market weighting each holding or weighting each holding based
on the cash back reward, but ended up going with an equal weighting for simplicity.
However, since we were just over an even 50 holdings, I had to underweight two holdings
to 1% while the rest stayed at 2%.
I chose to reduce AMC and GameStop to 1% because I believe they’re still way overvalued after
the short selling fiasco.
You may choose to underweight different holdings or cut some out entirely, but I wanted to
maintain exposure to all of them and this was the easiest choice for me.
After creating this portfolio, I put it into morningstar’s instant x-ray tool to get
some broader analysis.
I wish I could’ve gotten more detail here, but this was the only free service I could
find that let me analyze a 50 stock portfolio - but I also cut out gamestop here, because
I was limited to 50.
These were my results - essentially, we’ve created a large cap US stock fund.
Although this isn’t very exciting, this should result in a fairly stable portfolio.
Additionally, we can expect a bit of a growth tilt due to the software, tech and ecommerce
businesses.
But, when it comes to the sector breakdown, we can see that the portfolio isn’t as well
diversified as the S&P 500.
The majority of the stocks fall into the consumer cyclical category, where we have over 4 times
the exposure that the S&P 500 offers.
This does make sense when you consider the stocks involved, and it comes with some implications.
Consumer cyclicals will perform better in times of economic prosperity when people have
extra cash to spend on luxuries and non-essential items.
But in times of fear or lower spending, these stocks can be the first to suffer.
We’re also overweight in communication services.
On the other side of things, this portfolio is missing exposure to a few key sectors and
is quite underweight in tech.
So from an investing perspective, it’s important to understand that this is not a perfectly
diversified portfolio, at least in comparison to the S&P 500.
By focusing cash back on consumer-oriented brands, the M1 Owner’s card portfolio lacks
exposure to many large businesses that operate in other verticals.
I still think this results in an interesting portfolio that I’m eager to track long-term,
but it’s no guarantee of a smooth ride or stellar performance.
So after considering fees, the cash back rewards and the required investing portfolio, what’s
the verdict?
Ultimately, you have to start with looking at the cash back rewards and whether they
will be worth either the $95 card fee or the $125 M1 Plus fee.
Like I said, some eligible companies like Chewy, airlines, or any 10% back brand where
you’re making a big purchase could make up for these costs in one go.
Personally, I know I’m going to get a few dollars a month from things like Spotify,
Chipotle and Starbucks.
Then if I book a single flight or make an effort to spend at places like Walmart, Target
and Amazon, this card will have been worth it.
If you’re trying to figure out if this card will work for you, I would suggest estimating
your annual spend at the eligible companies and then calculating the amount of cash back
you can expect from a year of using the card.
You may also want to consider that other cards may have sign-up bonuses or no annual fees,
which could result in higher earnings elsewhere even if they offer slightly lower rewards.
After considering the fees and whether you’ll earn money with this card, you simply have
to decide whether or not you want to use the M1 finance platform.
I’ve already been using M1 Finance for over a year with no plans of leaving, so I enjoy
that this gives me more benefits within the ecosystem.
I’ll be renewing my M1 Plus membership at the $125 rate anyway, so getting this credit
card for free on top of the other perks makes it pretty appealing.
But if you have no interest in using the platform, it may not be worth the trouble to get the
card.
Finally, you’ll have to consider how to incorporate the stocks into your portfolio.
I’ve given my custom 51-stock investing pie a 2% weighting in my long-term investing
portfolio.
This way I’ll get all the possible cash back rewards and they can be automatically
reinvested into my long-term portfolio.
But, if you’ve got any better ideas for incorporating these stocks in a portfolio,
I’d love to hear from you in the comments.
By the way, if you want to copy the M1 Owner’s Card portfolio I created, you can use the
link in the description to put it directly into your own M1 Finance portfolio.
Or, if you don’t have an account yet, you can sign up to get $50 for free and then be
first in line on the waitlist for the M1 Finance Owner’s credit card.
But with that, thank you for watching, and I’ll see you in the next video.