6 Ways to Automate Your Stock Investment
Here’s How to Automate Your Stock Investing
16:28 11 October 2022
Investing in stocks is a great way to prepare for retirement or simply build your wealth. But it takes discipline and consistent contributions for it to work.
Why not make it easier on yourself by automating most of the process? Then you’re more likely to reach your investing goals and won’t have to spend as much time thinking about your stock portfolio.
To that end, here are six strategies that will help you automate your investing so you don’t have to worry about your financial future:
- Take advantage of employer-sponsored retirement accounts
If your employer offers a 401(k) plan, use it. Though they typically have limited investment options, 401(k)s are great for two reasons:
1) You can withhold part of your monthly salary to have it be automatically invested. That way, you don’t have to manually make the contribution. The money is invested before you ever see it.
2) Most employers include a matching program with your 401(k), which means they’ll match 50% to 100% of your contributions up to a certain limit (typically 6% of your annual salary). It’s like free money. So you should max out your employer match if you can.
- Consolidate your accounts
Next, consolidate your retirement and brokerage accounts. Many forget to take their 401(k)s with them when they switch jobs, but this is leaving money on the table.
Instead, make sure you always roll over your 401(k) into an individual retirement account (IRA). That way, you hold onto your investments and keep them under one roof.
The same goes for other brokerage accounts. Try to bring them, your retirement accounts, any 529 plans (tax-advantaged savings plans for your children’s education), and health savings accounts (HSAs) all under one custodian. Your investments will be easier to manage because you’ll have fewer statements to review.
- Set up automatic contributions
Another way to automate your investing is to set up automatic contributions. If you have to remember to transfer money from your bank account to your investment account every month, you’re less likely to do it.
Instead, set up regularly monthly or weekly contributions. This way, you’ll never stop investing (unless you manually pause or stop the transfers) and you’ll take advantage of dollar cost averaging, an investing strategy that makes it easier to deal with an uncertain market.
Keep in mind that tax-advantaged individual retirement accounts (IRAs) have yearly contribution limits. In 2022, the annual IRA contribution limit was $6,000. That means to take full advantage of tax-advantaged IRA investing, you would need to contribute $500 per month.
With regular brokerage accounts, you’re free to contribute as much as you want. So set an automatic contribution you’re comfortable with.
- Hire a financial advisor
Even if you know a little about stocks, choosing among millions of investment options can be overwhelming and intimidating. That’s where a financial advisor comes in handy. They can oversee your finances, give you professional advice, and help you develop a customized investment plan.
One way they do this is by leveraging RESTful stock data APIs, which provide real-time stock market data. With them, your financial advisor is able to allocate your investments based on the best stock market information. With them, your financial advisor is able to allocate your investments based on the best stock market information.
Of course, financial advisors charge a fee for their service. But in many cases, the gains from hiring a financial advisor outweigh the cost. Still, if you want to go a cheaper route, you can use a robo-advisor. They provide similar advice powered by computer algorithms, which makes them much cheaper. Some online brokerages even offer them for free.
- Invest in index or exchange-traded funds (ETFs)
Index funds are the perfect way to automate your investing. Why? Because they track a market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA), which provides broad market exposure without you having to worry about actively picking stocks. Index funds always follow their benchmark index regardless of the market.
On top of that, index funds offer very low management fees (if any) since they don’t require a fund manager. They are run completely by computer algorithms.
The same goes for exchange-traded funds, which typically follow an index but can be traded like individual stocks.
You may also consider target retirement funds. These not only follow an index but allocate your investments based on how close you are to retiring. For instance, when your planned retirement date is still far off, you can afford to have most of your assets in riskier growth investments like stocks. But as you near retirement, you want your portfolio to consist of more stable investments like bonds so you don’t risk a market downturn wiping out all your wealth right as you want to cash out.
A target retirement fund automatically reallocates your portfolio from mostly stocks to mostly bonds as you get older. It’s the most hands-free way to save for your retirement. Keep in mind, however, that target date funds usually have higher expense ratios than index funds and ETFs do.
- Have your dividends automatically reinvested
One final way to automate your investing is to have your dividends automatically reinvested. Most brokerages have a feature that allows you to do this.
As a shareholder, you’ll earn dividends from your stock investments quarterly. Instead of having them pile up in your brokerage account, let them be immediately reinvested into whatever fund or stock they originated from.
That way, you leverage the full power of compound interest and don’t leave any money sitting.
Adding it all up
Automating your investing can save you a lot of time and help you maximize your returns. After all, you’re less likely to overreact to changes in the stock market when you have your investments on autopilot.
So try implementing some of these automated investing strategies today, and start letting your money work for you without you having to think about it.