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My Two M1 Finance Portfolios – One For Growth, One For Dividends

With all the turbulence in the market these days, I thought it’d be interesting to see how my two M1 Finance portfolios have fared.

It would have been more interesting to have this running through the market crash and subsequent recovery. However, I don’t think this is the end of market volatility in the near term. As such, I’d like to track and document how two different strategies perform through these times. I plan to do these portfolio updates quarterly or so to see how things are holding up and how these portfolios grow or shrink.

Most of my investments are in simple reliable index funds and that’s what I recommend for most people. However, sometimes I like to flex my investing muscles and buy some individual stocks here and there. That’s what these two M1 Finance portfolios represent.

I use M1 Finance simply because it allows me to essentially build my own ETFs at no cost. I can pick a bevy of stocks and invest in them automatically. It’s got some flaws but overall it’s a nice easy to use and best of all, free platform. You can read my review of it here.

Within my M1 finance account, I have two portfolios. One is based on dividend growth and another is based on focusing on certain industries that I think have good potential for revenue growth.

I’ve already talked about the strategy based around dividend growth investing in another post. In essence, this is a simple strategy that avoids stock picking by simply investing in all of the S&P 500 dividend aristocrats equally.

This is simple focused investing based on a group of stocks that have historically done well and share certain characteristics. These stocks have paid and raised dividends for 25 years straight and have beaten the S&P 500 in an extended time frame. However, this recent market turmoil has really hit some industries represented here hard so it’ll be interesting to see how these companies weather the storm.

The other portfolio is focused on certain industries, most of which I think have good revenue growth potential. This generally means there’s a lot of growth stocks in this portfolio but it also includes some industries that aren’t necessarily strong growers but are in an industry I just want to have exposure to at the moment. You can see those industries and their allocations below.

There’s certainly a focus on growth companies with the top 3 slices including a lot of those. However, there’s also some mature industries like aerospace technology and sin stocks represented in there. Overall, there’s a big slant towards tech over anything else and that’s quite the departure from the other dividend growth portfolio which focuses on more mature companies and avoids tech almost entirely.

So how has either of these portfolios done lately? Let’s take a look. First, let’s start with the industry focused growth portfolio. Note that I’ll list the total I have in my portfolio as well as a link you can use to invest in the portfolio if you have an M1 account. As always, investments come with a risk of loss and you shouldn’t make any investments shown here without talking to a qualified investment advisor.

NOTE THAT THESE PORTFOLIOS ARE CONSTATLY CHANGING, PLEASE CHECK OUT MY LATEST UPDATES HERE.

Industry Growth Portfolio

Link to portfolio right here.

Portfolio total as of 5/25/2020 : $18,190.05

I started this portfolio at the start of 2019 but really started putting more money into it in the past year. As such, the total in this portfolio grew from just north of $6,000 in May of last year to over $18,000 this month. That included around $8,500 in contributions and a decent amount of overall growth.

The portfolio did show the volatility that comes with growth stocks during the market turmoil in March as it felt over 30% right along the market. However, as I kept buying during the market crash and accelerated my purchases away from my other portfolio, I benefited from the excellent returns that these stocks have had since then.

If one could stomach the volatility in March, this portfolio has had excellent Y/Y performance as shown below.

A one year return of 35.5% is pretty damn good considering that the S&P 500 is up ~7% in that time frame. It’s still crazy to me that the market is actually up y/y given what’s going on around us. However, the performance of portfolios such as this one are one of the reasons that the S&P isn’t tanking.

While there’s certain sectors that are down 30-50%, sectors related to technology are thriving and that’s what this portfolio has in spades.

The top 10 holdings here are Amazon, Microsoft, Visa, Alphabet, Alibaba, Apple, Shopify, Mastercard, Nvidia and Facebook. The biggest winners include a few of those but also MercadoLibre, JD, Okta and Tesla.

The biggest losers were Altria, America Express, TrasnDigm and Heico. In general, the sin stocks and aerospace bets didn’t pay off and the other bets paid off big. Aerospace was heavily correlated to the trouble with airplane travel and sin stocks lost a lot of luster as a good portion of their earnings are restaurant/event based.

E-commerce was a huge winner for this portfolio as were some of the other tech plays that benefited from people staying at home more.

You can see a lot of familiar names in that group of winners and that’s one of the reasons I chose to invest in a portfolio like this one. I wanted exposure to companies that I think are good and poised to have great returns but didn’t want to have to choose between one or two.

With M1, I can have a portfolio of 79 stocks and benefit from the growth that comes with them. However, I’m protected against huge losses if one or two of these guys simply fail.

I can also easily make changes if I want to and add more stocks if I find any I like. It’s a nice easy way to have exposure to individual stocks I like in a small controlled manner. I still have most of my money in index funds but this small portion is starting to grow and has a lot of great companies that I think will produce out sized returns in the future.

However, I am 100% aware that I could be and most likely am wrong which is why this will always be a small % of my portfolio total. Still, it scratches that itch from my finance hobby of finding new stocks and doing research and adding them to my portfolio.

Right now, I’m thinking of adding Sea Limited(SE), a multi faceted tech company with a focus on southeast Asia, to my portfolio and revisiting my sin stock and aerospace allocations as those have some issues in the near term.

On top of that, I’m thinking of potentially reducing my Chinese stock exposure due to the recent issues on that front. I already knew not to trust Chinese accounting(ex. Luckin accounting issues) but the recent bill to potentially remove certain Chinese companies off U.S. exchanges if they don’t meet certain filing requirements also adds another element to the risk with investing in stocks from China. I don’t think the few companies I own are at risk of that but you never really know.

Overall, these changes probably won’t happen soon(beyond adding SE) but it’s something I’ll look at as earnings emerge and I get a better idea of the pandemic’s impact on certain industries represented here. Right now, it seems like tech is going to be a winner and that should mean good things for the portfolio. However, tech is also priced for perfection right now in relation to some other industries so it’s not quite as good a deal as it was a few months ago.

People already thought that technology would displace certain industries but it seems like the pandemic has accelerated the timing of when that will happen.

On that topic of tech displacing things, let’s take a look at my other portfolio.

Dividend Growth Portfolio

Link to portfolio right here.

Portfolio Total as of 5/25/2020 : $17,914.13

I started this portfolio around the same time as the first one and felt it was a safer bet so I started off this with contributions being overweight here. As such, the portfolio has gone from $4,000 in May of last year to just south of $18,000 this year. That included over $14,000 in contributions.

As I mentioned above, this portfolio is made up entirely of S&P 500 dividend aristocrats. These are companies that have paid and raised their dividend for 25 years straight so I felt pretty good about this portfolio going into this year. After all, these are safe long term investments that should be better in times of trouble than those silly risky growth companies.

However, sitting here, I’m up 35% y/y on the other portfolio and actually down around 2% on this portfolio. I don’t have an easy to show graph like I had for the other portfolio because UTX broke up into 3 separate companies and that skewed some of the reporting here as Carrier and Otis have only traded since April.

Still, the reason for the crappy performance is clear. There’s basically 0 tech exposure in this portfolio as most tech companies haven’t even been around for 25 years. If tech is going off and this portfolio is missing it then it makes sense that it’d trail the S&P 500.

Unfortunately, no crisis is like another and this one really impacted a lot of stocks in this cohort a lot more than others. There’s energy exposure here and oil isn’t doing great. There’s retail exposure here and that’s quite a mess right now beyond the big dogs. In fact, the 66 stocks that make up this portfolio are now down to 65 as Ross Stores suspended their dividend this month causing me to remove them from the portfolio. There’s even some REITs and financials here and that’s an area that will likely struggle in the short term due to various factors.

There’s still some winners in this. Carrier has done well since the spin-off and Clorox has been an obvious winner. Lowe’s and Sherwin-Williams have been strong as people used the time at home for home improvement projects. Abbvie and Abbott have done well too.

On the other side, Cincinnati Financial, Exxon Mobil, Franklin Resources, VF Corp, Aflac and People’s United Financial have struggled. Even companies like Coke are in the negatives as so much of their revenue is dependent on restaurant/event spending which has ground to a halt.

Overall, this hasn’t been a wonderful time for this portfolio and I don’t know if this is the end of it. The Ross Stores dividend suspension probably isn’t the last one to happen in this cohort. After all, the 2008 crisis claimed 19 companies from this group. One has to think that this crisis will have to claim more than one. I’m sure the group of stocks I own in this portfolio will change quite a bit before we’re through it all.

Am I worried about that? Eh, not really, I knew what I signed up for and I knew that dividend cuts or suspensions may happen during the next recession or market shock. This is one of those and if more companies cut their dividends then I’ll just cut them from the portfolio and re-allocate those funds into the other companies that are still paying and growing dividends.

However, I’m also not unrealistic about the fact that this portfolio could struggle in the near term. There’s a lot of energy and retail and consumer staple exposure here that might not find its footing for a while. However, all that means is that I’m potentially getting some decent values in a market that might not be all that full of them.

The market can be quick to discard struggling industries and focus on winners. These companies won’t struggle forever and a recovery when it comes may be swift. In the same sense, tech won’t be a winner forever and prices might fall back to earth once things recover.

If a good percentage of these companies make it through this then I’m probably buying those companies at a much more favorable yield right now than I’d be able to otherwise and that’s the whole point. The dividend growth will compound over the long term and lead to good overall results.

After all, this portfolio is all about dividend growth and I’m certainly seeing that growth already. The numbers are still low but it’s nice to see that income flowing in pretty much monthly.

In the long run, this portfolio should be a lot less volatile than the portfolio above but it really didn’t do that job this time around.

Still, I have no plans to change my strategy anytime soon. Both of these M1 Finance portfolios still belong in my investing strategy. The growth portfolio has been killing it so far but it comes with a lot of the inherent risk that comes with investing in high flying stocks. On the other hand, the normally less volatile dividend growth portfolio hasn’t done great trailing the S&P 500 but I’m hopeful that turns around as this odd market cycle progresses.

I’m sure there’s still a lot of risks ahead and that’s why I wanted to start this series of updates. I’ll try to update you on these two M1 Finance portfolios regularly so I’ll see you here in another quarter or so(or whenever anything interest happens).

Disclosure : I am long all companies discussed within this article and contained in the linked M1 Finance portfolios. These portfolios may change at any time and I will not update this article with those changes(you’ll have to wait until the next update to see changes). Investing in stocks via these portfolios comes with risks of loss and you should discuss any investment plans with a qualified investment advisor.