Automated Investing: How to Save and Invest More?

Many people struggle with having a consistent savings plan for retirement, especially if their investing habits aren’t routine. This is where automated investing comes in. 

Automated investing is one of the best ways to simplify saving and lighten your mental load. By automating your investments you are less likely to miss your investment goals as they are directly withdrawn from your paycheck and transferred to an investment account. It is a crucial strategy to compound investment growth. 

While you may have to put in some extra effort initially, automatic investments ensure that you never fall short on investing. This guide will help you understand what is automatic investing and how you can automate your investments. 

Let’s get started. 

What is Automated Investing?

Automated investing is a way to contribute money to your investment accounts regularly through recurring bank transfers or direct deposits. It helps in developing the habit of investing regularly with no extra effort on your part. 

Automatic investments can help keep you ahead of your savings goals, no matter where you are in life. Moreover, there are various long-term benefits to setting up auto investing. 

For starters, if the money is directly deducted from your paycheck, it reduces the temptation to overspend. You can also avoid spending time thinking about money and where to invest it. And lastly, it helps your saving and investing stay on track while you live your life. 

How to Automate Your Investing?

Nowadays, it’s quite easy to set up automated investing. Various platforms like Fidelity and Wealthfront let you create an account and automate your investments. However, each platform has its own processes and it is important to review the range of account minimums and potential approvals required to open an investment account. 

Next, collect your personal documents and bank information and the investment platform will walk you through the process. Here is what the basic process looks like when setting up your automated investing account- 

Create an Investment Account

Start by choosing a User ID and password for your account. Next, select the type of account you want, like an IRA account or taxable investment. If you want to do swing trading, you might need approval to open certain types of brokerage accounts. 

Choose Your Assets

You can consult robo-advisors and micro-investing apps to understand what assets are best for you. They will ask certain questions about your investment goals, risk tolerance, and tenure and depending on your answers, the platform will select the best assets for you. 

Workplace retirement accounts provide a list of investments you can choose from whereas self-directed retirement accounts offer a plethora of stocks, bonds, ETFs, and mutual funds. 

Link Your Funding Account

Next, you will have to choose a checking or savings account for fund transfers. You will need to submit your bank information, including the name of the bank, the bank’s routing number, and the account number. 

If you are opening a 401(k) account, this step is not required as funds are directly transferred from your paycheck to your retirement account. 

Create a Funding Schedule

For a self-directed account or robo-advisors, you can select how much money you wish to transfer and the frequency of the transfers. With a workplace retirement account, make sure to set up a large enough transfer to receive the maximum employer match. 

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Types of Automatic Investments

There are multiple ways to set up automated investing. From robo-advisors to workplace retirement accounts like 401(k), we have explained the various types of automatic investments to help you choose the best option for saving. 

Robo-Advisors

Robo-advisors like Fidelity and Wealthfront offer a cost-effective option for smart investing. The robo-advisor asks you several questions like risk tolerance, investment goals, and time horizon, and depending on your answers, the robo-advisor will create a personalized investment portfolio for you. 

Set up an automatic transfer into the account and the digital investment manager will keep your investments in check for you. Moreover, some robo-advisors also offer services like access to human financial advisors. 

Employer-sponsored Retirement Accounts

Most employers in the United States offer a sponsored retirement account like 401(k), 403(b), or 457 account. In these accounts, you can choose a percentage of your paycheck that will be deducted and transferred to your retirement account. Some employers also match your contributions up to a certain percentage. 

The money in the retirement account is invested into stocks, bonds, or mutual funds that you select. While in the account, your money grows tax-free. 

Dividend Reinvestment Plans(DRIP)

A Dividend Reinvestment Plan is an option in your retirement account that lets you reinvest all your dividends and capital gains in the same asset. By reinvesting your investment income into more shares, your money compounds and your account value grows more quickly. 

Recurring Transfers

You can also set up an automatic recurring transfer from your savings or checking account into your investment account. The funds can be automatically transferred to a retirement or taxable investment on a daily, weekly, monthly, yearly, or any other recurring schedule. However, it is important to ensure that your checking account is not overdrawn by recurring transfers. 

Rounding Up

Micro-saving and investing apps like Acorn allow you to link a debit or credit card to the app. You can select a round-up amount from the next dollar, up to 10 times the original amount. Whenever you make transactions with your card, the round-up amount will automatically be transferred to your investment account. 

Factors to Consider When Opening an Automatic Investment Account

The availability of multiple automatic investment choices can be confusing to a beginner or average investor. Here are some factors that will help you narrow down your choices and choose the one most suitable for you. 

Customer Service

Customer service is a crucial part of any automatic investment for advanced and beginner investors alike. A robo-advisor cannot answer all your queries. If you prefer talking to a human, make sure to check the customer service availability and contact times before you make a decision. 

Commissions and Fees

Before investing with any platform, make sure to understand its fee structure, including management fees, expense ratios, and other hidden charges. It is important to evaluate whether the services you are receiving are worth the fees. 

Account Minimums

Besides these factors, it is also important to understand the account minimums, that is how much money you will need to open and maintain the account. Identify whether there is a minimum balance requirement and is it suitable to your current financial situation. 

Investment Tools

This is especially important for self-directed investment accounts. If you are a self-directed investor, evaluate the investment tools on the platform like calculators, screeners, trading platforms, and research reports. Make sure that the research tools are up to the mark and match your investment needs. 

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Information Required to Open an Automated Investing Account

Here is the necessary information required to open an automatic investment account. 

Personal Information

• Name
• Social Security Number
• Address
• Telephone Number
• E-mail Address
• Date of Birth
• Driver’s License, or other government-issued identification
• Employment Status and Occupation
• Whether you are employed by a brokerage firm
• Annual Income
• Net Worth
• Investment Objectives and Risk Tolerance

Why is Automated Investing Important? Overcoming Investment Reluctance

One of the reasons people fail to achieve their investment goals is because they are reluctant to start investing. It is understandable as investing can be quite complicated and scary for beginners. 

Your brain presents many small obstacles as excuses for avoiding them. This is called ‘cognitive bias.’ They are patterns of thinking our brain uses to make quick decisions. 

One such cognitive bias is ‘loss aversion’ or fear of incurring a loss. People tend to be more sensitive to the danger of loss than they are to the possibility of profits. 

Another common bias among people is ‘temporal discounting.’ This means people tend to put greater value on getting money today instead of getting more money in the future. 

Then, there is the issue of timing. Investors often delay their investments as they think the time isn’t right. But the best time to invest is as soon as possible. Ken Fisher said it’s not about timing in the market but time in the market. 

These biases aren’t necessarily bad but they are obstacles that make individuals reluctant about investing. This is why automatic investments can be a great help. You can set up automatic investments and just forget about it. Even if you forget to save for the next 3 months, your savings will still be on track. 

Final Words

Automated investing is a helpful strategy to ensure that you regularly save and invest for the future. Humans are imperfect creatures and all of us tend to forget our bills. Automated investing pre-programs our behaviour to put investing for the future before other expenses. 

This strategy is especially helpful for individuals who want to save for retirement, a child’s college education, a new home, or just save for any financial goals five years down the road. 

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Frequently Asked Questions(FAQs)