How to Automate Your Investing

Investing can seem like a daunting task, but thanks to technology, you no longer need to be a financial expert to grow your wealth. Automating your investments allows you to build wealth passively, saving time and reducing the emotional decision-making that can often lead to costly mistakes. In this guide, we’ll explore how to automate your investing, the benefits of doing so, and the best tools to get you started.

Why Automate Your Investing?

Before diving into how to automate your investments, let’s understand why it’s beneficial:

1. Consistency: Automation ensures that you are consistently investing, even during market downturns or when you’re busy.
2. Emotional Control: It helps you avoid emotional reactions to market volatility. By setting up a system, you stick to your plan no matter what happens in the market.
3. Time-Saving: Once the system is in place, there is little to no need for constant monitoring, freeing up your time for other activities.
4. Dollar-Cost Averaging: By automating regular investments, you automatically use a strategy called dollar-cost averaging, buying more shares when prices are low and fewer when prices are high, leading to long-term benefits.

Step-by-Step Guide to Automating Your Investments

Step 1: Set Financial Goals

Before you can automate your investments, you need to define your financial goals. Ask yourself:

• How much do I want to save or invest in the next 5, 10, or 20 years?
• Am I investing for retirement, a major purchase, or just to grow my wealth?

Having clear goals helps you select the right automation strategy. For example, retirement-focused investments might require a different approach compared to short-term goals.

Step 2: Choose the Right Investment Account

There are several types of accounts where you can automate your investments:

• 401(k) or 403(b): Many employers offer retirement plans where you can automate contributions directly from your paycheck.
• Roth or Traditional IRA: Individual Retirement Accounts (IRA) allow you to automate contributions for retirement savings.
• Brokerage Account: If you’re saving for non-retirement goals, a standard brokerage account can be a great option for automating investments.

Step 3: Select Your Investment Strategy

Automation requires a solid investment strategy. Two popular approaches include:

1. Index Funds and ETFs: Low-cost index funds or exchange-traded funds (ETFs) are ideal for automation because they diversify across many stocks or bonds. You don’t need to pick individual stocks, which reduces risk and simplifies the process.
2. Robo-Advisors: These are online platforms that create a personalized portfolio for you based on your risk tolerance and financial goals. They manage the portfolio automatically, rebalancing it when necessary. Some popular robo-advisors include:
   • Betterment
   • Wealthfront
   • SoFi Invest
   • Vanguard Digital Advisor

Step 4: Set Up Automatic Contributions

The core of automating your investments lies in setting up recurring contributions. Here’s how to do it:

1. 401(k) or IRA Contributions: If you have a retirement account like a 401(k) or IRA, you can set up automatic deductions from your paycheck or bank account. Many employers will match your 401(k) contributions, so make sure you’re contributing enough to get the full match.
2. Brokerage Account Transfers: For non-retirement accounts, set up regular transfers from your checking or savings account into your brokerage account. Most brokerages, such as Vanguard, Schwab, and Fidelity, offer this feature.
3. Dollar Amount or Percentage: Decide how much to invest regularly. A good rule of thumb is to aim for 15-20% of your income for long-term investments. However, if you’re just starting, even automating $50-$100 a month can make a big difference over time.

Step 5: Reinvest Dividends

Another way to maximize automated investing is by reinvesting dividends. Most brokers and robo-advisors offer a “dividend reinvestment program” (DRIP), where any dividends earned from stocks or ETFs are automatically reinvested to buy more shares.

Step 6: Regularly Review and Adjust

Even though automating your investments is mostly hands-off, it’s important to review your portfolio at least once or twice a year. Look for the following:

• Rebalancing Needs: If certain assets have grown too large a portion of your portfolio, you may need to rebalance by selling some of them and buying others.
• Changing Goals: If your goals or financial situation have changed, adjust your automated contributions accordingly.

Most robo-advisors automatically rebalance your portfolio, but if you’re managing it yourself, some brokerages offer an auto-rebalancing feature.

Tools to Automate Your Investing

1. Robo-Advisors

Robo-advisors are ideal for hands-off investors. These platforms use algorithms to automatically invest and rebalance your portfolio according to your goals. Some popular options include:

• Betterment: Offers goal-based investing and automated rebalancing with a low fee structure.
• Wealthfront: Similar to Betterment, with tax-loss harvesting and smart cash management features.
• Vanguard Digital Advisor: Combines robo-advisor features with Vanguard’s low-cost funds.

2. Apps for Micro-Investing

If you want to start with smaller amounts, micro-investing apps are perfect for beginners:

• Acorns: Rounds up your everyday purchases to the nearest dollar and invests the spare change into a diversified portfolio.
• Stash: Allows you to invest with as little as $5 and provides personalized guidance based on your goals.
• M1 Finance: Offers free, automated investing in pre-built portfolios or custom “pies” of ETFs and stocks.

3. Automatic Transfers Through Brokerages

Most major brokerages allow you to set up recurring deposits from your bank account into your investment accounts. Here are a few:

• Vanguard
• Fidelity
• Charles Schwab

Conclusion

Automating your investments is one of the smartest financial decisions you can make. It takes the guesswork out of investing, ensures consistent contributions, and removes emotions from the process. By following this guide, you can start growing your wealth passively, while focusing on other aspects of life.

Whether you choose to use robo-advisors, index funds, or micro-investing apps, the key is to start today and remain consistent. Time in the market is more important than timing the market, and automation can make sure you’re always invested, rain or shine.