You’ve got enough boring stuff on your to-do list. Remembering to invest in your portfolio shouldn’t be one of them. Setting up automated investments not only saves you time but also makes sure you keep investing regularly. No extra effort or discipline needed. There are plenty of ways to automate your investments, like signing up for your job’s 401(k) or reinvesting dividends in your brokerage account. It’s easy to set up recurring transfers and contributions, and taking a few minutes to automate your investments now can save you a lot of time and missed chances later on. Want to make your investments easier? Here’s how to set up an automated investment plan and some tips to simplify your deposits.
A lot of people put off investing or don’t start at all because they find it overwhelming or are scared of the risks. An automatic investment plan can help clear up those worries by giving you a straightforward action plan to follow when investing or trading in stocks. Here’s how to create your plan, step by step.
Start by choosing what percentage of your salary you can comfortably invest. Use a percentage instead of a dollar amount so that your contributions go up as your salary does. Most experts suggest investing 10 to 20 percent of your salary, but first, make sure you’ve got an emergency fund with at least three to six months’ worth of living expenses saved up.
Pick a workplace retirement account, a taxable brokerage account, or an individual retirement account (IRA) to contribute to. We’ll go over the details on each of those accounts later.
Most experts recommend low-cost index funds that track market indices like the S&P 500. They’re a smart, affordable way to diversify your portfolio without having to manage a bunch of mutual funds or stocks. You could also check out exchange-traded funds, or ETFs. These can track an index, but some ETFs focus on specific sectors like small companies, international businesses, or high-yield bonds.
Decide how often you want to transfer money — weekly, bi-weekly, or monthly. Most online brokerage platforms make it super easy to set up automated transfers.
Automating your investments is like putting your bills on auto-pay. Both methods ensure you stay consistent and on time. Bills get paid when they’re supposed to, and investments get made without you having to think about it. Automated investing also lets you benefit from dollar-cost averaging, which means consistently investing a fixed amount at regular intervals, no matter what’s happening in the market. This strategy helps even out the effects of market ups and downs, allowing you to buy more shares when prices are low and fewer when they’re high. The result? A lower average cost per share over time — a big win for any investor. Here are some other perks of automated investing:
Some stocks pay qualified dividends, which are earnings distributions usually paid quarterly by a company to its shareholders in cash or stock reinvestment. Most brokerage firms let you set up your account to automatically reinvest in shares of the company or fund that paid the dividend.
By reinvesting, your account value grows faster. Over time, this compounding effect can help you buy more shares of the stock or fund, boosting your overall returns significantly.
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Here are some simple ways to automate your investments. It might be easier than you think, especially if you're contributing to a 401(k) or something similar for retirement. If you're looking to invest outside of work, you'll need to set up an account, choose your investments, and arrange for automatic transfers if you haven't done that yet.
Micro-investing apps like Acorns and Stash have a cool way of making investing easy. They let you round up your everyday purchases to the nearest dollar and invest that spare change. You can also set up recurring transfers daily, weekly, or monthly to boost your investments. These apps act like robo-advisors, using algorithms to invest your money based on your risk tolerance and goals, but the spare change round-up feature is what makes them unique. While they’re a convenient way to start investing with small amounts, keep in mind that they can charge higher fees, especially if your account balance is low. For instance, Acorns has a flat $3 monthly fee for its basic taxable brokerage account. That doesn’t seem like much, but $36 a year regardless of your balance is pretty steep, especially when most major investing platforms don’t charge any annual or monthly fees.
Not everyone needs a financial advisor for managing their investments, but if you're dealing with something complicated (like inheriting an IRA) or just want some personal advice, a financial advisor can really help you out. They can check out the investment options in your 401(k) and suggest the best ones for you. Plus, they’ll look at your current financial situation, create a personalized investment strategy, and review and tweak your portfolio over time. By letting a financial advisor handle your investment decisions, you’re kind of automating your portfolio management. They’ll keep an eye on everything day-to-day and make adjustments as needed. You get to save time while still having a pro to reach out to when you have questions about your investments or finances. If you need expert help with your money or retirement planning, Bankrate’s AdvisorMatch can connect you with a CFP® professional to help you reach your financial goals.
Robo-advisors are pretty handy because they use algorithms to create and manage a diversified portfolio based on your risk tolerance and financial goals. Investing through a robo-advisor is super easy: just send in your money, and they handle the rest. Plus, they usually have lower fees compared to a human financial advisor. Companies like Betterment and Wealthfront made low-cost automated investing accessible to everyone over ten years ago, and now even big financial institutions like Schwab and Vanguard have joined the robo-advisor game. Once you open your account, you can set up direct deposits and recurring transfers. Your funds will be invested according to your plan and automatically rebalanced as needed. Robo-advisors like Wealthfront and Betterment also offer IRAs and regular brokerage accounts, so you can pick the tax treatment you prefer before diving in.
So, while retirement accounts like 401(k)s and IRAs have great tax benefits, some folks like the freedom that comes with a brokerage account. The cool thing about taxable brokerage accounts is that there are no annual contribution limits, and you won’t get hit with a 10 percent IRS penalty if you take money out before you’re 59 ½. Just keep in mind that if you sell investments that have gone up in value, you’ll have to pay capital gains taxes, even if you don’t take any money out of the account. On the flip side, with an IRA, you can dodge capital gains tax on trades and only pay income tax when you withdraw during retirement (or avoid income tax entirely with a Roth).
Opening a brokerage account and setting up automatic transfers is pretty straightforward, just like opening an IRA. You just link your bank account, decide how often you want to contribute, and pick your investments. A lot of people end up having both a taxable brokerage account and an IRA since most major online brokerages offer both these days. Chatting with a financial advisor can help you figure out which accounts suit you best.
Not every job has a 401(k). In fact, as of 2022, about 31% of private industry workers didn’t have access to an employer retirement plan. IRAs are a good option for investing outside of work. Even if you have a 401(k), you might find better fees and more options with an IRA. Lots of online brokerages like Vanguard, Fidelity, and Charles Schwab offer IRAs, and you can open one in just a few minutes by linking your bank account for your first deposit and setting up recurring transfers.
An IRA gives you access to a wide variety of investment choices, like stocks, bonds, mutual funds, and ETFs. Just make sure you know what you're doing or check out some beginner resources before diving in. There are two main types of IRAs: traditional and Roth, each with its own tax rules. A Roth IRA lets you withdraw money tax-free in retirement, but your contributions won’t lower your taxable income now. A traditional IRA, on the other hand, allows you to deduct your contributions from your taxable income, but you’ll pay taxes when you take money out in retirement. Both types have a 10% penalty if you withdraw early, before age 59½. In 2024, you can contribute up to $7,000 to either type of IRA, with an extra $1,000 catch-up contribution for those 50 and older. If you're self-employed, look into SEP IRAs or Simple IRAs, which have some nice benefits for small business owners, including higher contribution limits.
If your job offers a retirement plan like a 401(k) or 403(b), take full advantage of it. With a 401(k), you can automatically put a part of your paycheck into your retirement savings before it even hits your bank account. This can lower your taxable income, which is helpful come tax season. Plus, many employers will match a percentage of what you contribute, which is basically free money for your future. In 2024, you can contribute up to $23,000 to your 401(k), with an extra $7,500 for folks aged 50 and up. When you sign up, you'll decide what percentage of your salary goes in and might even have the option to increase that amount each year. Then, you can choose your investments from a range of mutual funds, usually between 10 and 30 options. Target date funds are popular since they automatically adjust your investment mix as you get closer to retirement, shifting from stocks to bonds and cash. Just be sure to check out the specific investments in those funds, as some are more aggressive or conservative than others.
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Automating your investments is a smart way to let your money cruise on auto-pilot. Whether you go for an employer-sponsored retirement plan, a robo-advisor, or an IRA, the main thing is to set up a system and let it do its thing. We hope this guide helps you to automate your investments.
