12/10/2023 | 4 Comments

What is automating your investments? This is one question that must be in your head if you are unaware of word, automating. Well, automating your investing is a practical and efficient way to build wealth and secure your financial future without watching the market constantly. In simple terms, it is all about keeping your investments in the automatic mode. However, it involves setting up a system to invest your money regularly and efficiently. So, here in the article, we are going to understand how you can automate your investments in five simple steps. This would help you learn the power of auto investing or financial automation. So, let’s move on and learn about these investment strategies.

Define Your Financial Goals

The first and foremost step in automating your investing is always to define your financial goals. Yes! Ask yourself what you want to achieve with your investments. Understand if you are saving money for your retirement, a down payment on a house, or just looking to grow your wealth over time. If you know your goals, it would certainly help you determine the right investment strategy and the level of risk you can be comfortable with. Consequently, you would be able to resort to right investment planning.

Create a Budget

Once you have your goals in your mind, the next step is to create a budget that outlines your income, expenses, and how much portion you can dedicate to investments. It is because automating your investing means setting up regular contributions, so you need to know how much you can comfortably afford to invest without messing up your finances. If you are unable to decide on it, a good rule of thumb is to aim for saving at least 20% of your income, though this can vary depending on your goals and financial situation. You can also use budgeting tools or apps to track your finances and identify areas where you can cut expenses.

Choose Investment Accounts

You must also select the right investment accounts to suit your goals and risk tolerance. You have common options that include individual brokerage accounts, retirement accounts, and tax-advantaged accounts for specific purposes. If you are saving for retirement, consider tax-advantaged accounts because they offer tax benefits and potentially higher contribution limits. If you are looking forward to general wealth building, brokerage accounts can be the right option for you as it provides flexibility. You can also diversify your accounts as it can help you optimise your tax strategy and align with your goals.

Automate Contributions

Now comes the significant part – contributions. Automating your investing means setting up regular contributions to your chosen accounts. You can set up automatic transfers from your bank account but for that, you need to determine a consistent schedule that aligns with your paydays, whether it is weekly, or monthly. The beauty of automation is that it ensures you invest regularly, regardless of market fluctuations or your busy schedule.

Diversify Your Portfolio

Diversified Portfolio

If you wish to go with passive investing or auto investing, then you should also diversify your portfolio. It is because diversification is the key to managing risk in your automated investment strategy. You can spread your investments across different asset classes like stocks, bonds, and real estate to minimise the impact of a single bad investment. You also have the option to further diversify and invest in various industries, sectors, or regions.