Automating Your Monthly Etf Investments: A Step-By-Step Guide

Automating your monthly ETF investments can be a great way to save time and ensure that you are consistently investing over time. By setting up recurring transfers and contributions, you can take advantage of dollar-cost averaging, which smooths out market volatility and helps you buy more shares when prices are low. Automating your investments can also reduce the temptation to spend your investment funds on something else and can help you avoid overreacting to market fluctuations.

To get started with automating your monthly ETF investments, you can follow these steps:

1. Determine your contribution percentage: Decide on a comfortable percentage of your salary to contribute to your investments, ensuring that it is in line with your risk tolerance and financial goals.

2. Pick your account: Choose between a workplace retirement account, a taxable brokerage account, or an individual retirement account (IRA) as your preferred investment vehicle.

3. Select your investments: Opt for low-cost index funds or exchange-traded funds (ETFs) that align with your investment strategy and risk appetite.

4. Set up automatic transfers: Decide on the frequency of transfers (weekly, bi-weekly, or monthly) and utilise the features provided by your online brokerage platform to automate your contributions.

By following these steps, you can efficiently automate your monthly ETF investments, allowing you to stay on track with your financial goals without constantly monitoring the market or making emotional financial decisions.

Automate investments in an employer-sponsored retirement account

Automating your investments in an employer-sponsored retirement account is a smart way to simplify your wealth-building strategy. Here's a step-by-step guide to help you automate your investments in such an account:

Step 1: Understand the employer-sponsored retirement account options

The most common employer-sponsored retirement account is the 401(k) plan. However, other options include 403(b) plans, typically offered by public education organizations and nonprofits, and 457 plans, which are available for government employers and workers.

Step 2: Enroll in your employer's plan

If your company offers an employer-sponsored retirement plan, you will generally need to enroll to participate. Some companies provide automatic enrollment, making it even easier to get started.

Step 3: Determine your contribution amount

Once enrolled, you can choose the percentage of your salary you wish to contribute, up to certain limits. Consider contributing enough to take full advantage of your employer's matching contribution, if offered. This is essentially "free" money that you don't want to miss out on.

Step 4: Select your investments

Your employer's plan will offer you a choice of investments. Be sure to choose a mix of investments that align with your risk tolerance and time horizon. Many employer-sponsored plans offer investment education resources to help guide your decisions.

Step 5: Set up automatic contributions

With an employer-sponsored retirement account, contributions are typically deducted directly from your paycheck and deposited into your retirement account. This automated process makes saving for retirement more manageable and helps ensure you stay on track with your financial goals.

Additional considerations:

Remember to review the plan's FAQ pages and understand the account minimums, potential approvals needed, and other requirements before setting up your automated investing account. Additionally, consider consolidating your old retirement accounts and setting up automatic dividend reinvestments to further optimize your investment strategy.

Consolidate your investment accounts

Consolidating your investment accounts is a great way to simplify your investment management and improve your returns. It is especially useful if you have multiple old 401(k) plans or investment accounts with different brokers. By consolidating your accounts, you can benefit from easier management, potentially lower fees, and improved returns.

• Roll over old 401(k)s into an IRA: If you have left behind old 401(k) plans from previous jobs, it is advisable to roll them over into an Individual Retirement Account (IRA). This will give you more control over your investment portfolio and make it easier to manage. Additionally, you may benefit from lower fees and improved returns by investing in a lower-return fund.
• Consolidate investment accounts from multiple brokers: If you have investment accounts with different brokers, consider consolidating them into one account. This will simplify your investment portfolio and make it easier to automate your investments.
• Set up new automatic investment accounts: Once you have consolidated your old accounts, consider setting up new automatic investment accounts. For example, if you have children, you may want to set up a 529 plan to save for their educational expenses. You should also explore the option of a health savings account (HSA).

By consolidating your investment accounts, you will be able to streamline your investments, make more efficient decisions, and potentially improve your overall returns.

Automate dividend reinvestment

Dividend reinvestment is a simple process that can be automated through your brokerage account. Dividends are cash amounts paid out to shareholders from a company's profits.

When a company pays a dividend, the cash is used to buy more shares of the underlying investment. This is completely automated if an investor signs up for automatic dividend reinvestment. Instead of receiving a cash payment, an investor will get more shares of the company or fund based on the current market rate. If the dividend payment is less than the full share cost, an investor will receive fractional shares.

There are several benefits to dividend reinvestment. It is easy to set up, usually commission-free, and allows investors to buy fractional shares. It also enables investors to put cash to work quickly and benefit from the miracle of compounding.

For example, an investor who put $10,000 into an S&P 500 index fund in 1960 would have more than $640,000 by the end of 2022, according to data from Morningstar and Hartford Funds. However, if dividends were reinvested, investors would have more than $4 million at the end of 2022.

There are some drawbacks to dividend reinvestment. Investors have no control over the price at which they buy shares. If the stock gains significant value, they will still buy shares at a high price. Additionally, an investor could end up with a large allocation to a particular stock as they continue to buy shares through reinvestment.

It is important to note that cash dividends are usually taxable, even if investors reinvest that money automatically. However, tax rates vary depending on the type of dividend and an investor's taxable income. For example, the tax rate on qualified dividends is 0%, 15%, or 20%, while the tax rate on non-qualified dividends is the same as the investor's regular income bracket, ranging from 10% to 37%.

In summary, dividend reinvestment is a powerful tool for investors to steadily grow their wealth. By automating this process, investors can benefit from the power of compounding and put their cash to work quickly and efficiently.

Choose a robo-advisor

Robo-advisors are a low-cost, online investing platform that employs software algorithms to create and manage investment portfolios. They are a good option for those who want to automate their monthly ETF investments.

When choosing a robo-advisor, it's important to consider factors such as fees, investment options, account options, and advice. Here are some recommendations for robo-advisors that can help you automate your monthly ETF investments:

• Wealthfront: This robo-advisor offers a low fee of 0.25% for most accounts and has a $500 account minimum. It provides a wide range of investment options, including ETFs, individual stocks, and direct indexing. It also offers tax-loss harvesting and high-yield cash accounts.
• Betterment: With a $0 account minimum and a low fee of 0.25% for most accounts, Betterment is a great choice for beginners. It offers multiple portfolio choices, including smart beta, socially responsible investing, and crypto portfolios. Betterment also provides low-fee financial advice packages.
• SoFi Automated Investing: SoFi stands out for its low fees, with no annual advisory fee and low-cost ETFs. It has a $1 minimum investment requirement and provides access to financial advisors. However, it does not offer tax-loss harvesting.
• Vanguard Digital Advisor: This robo-advisor is known for its low fees, with an annual net advisory fee of around 0.20%. It utilizes Vanguard's ultra-inexpensive ETFs and provides excellent retirement planning tools. However, it does not offer access to financial advisors.
• M1 Finance: M1 Finance is a unique robo-advisor that offers users more discretion in their portfolio selection. It provides access to thousands of ETFs and stocks, as well as pre-built portfolios called "Pies." There is a $100 account minimum, and a $3 monthly platform fee for accounts with less than $10,000.
• Ellevest: Ellevest is designed specifically for women investors, offering financial management that aligns with their career and life situations. It has a $0 account minimum for the digital plan and provides discounted access to financial advisors. However, it does not offer tax-loss harvesting or extensive portfolio customization.

When selecting a robo-advisor, be sure to consider your personal financial goals, investment preferences, and the level of customization and advice you require.

Set up automatic transfers

Setting up automatic transfers is a crucial step in automating your monthly ETF investments. Here are some detailed instructions to help you through the process:

Determine the Transfer Amount and Frequency:

Before setting up automatic transfers, decide on the amount you want to invest and how often you want to transfer funds. You can choose to make transfers weekly, bi-weekly, or monthly, depending on your preferences and financial situation.

Choose the Source Account:

You can set up automatic transfers from various sources, including your paycheck, checking account, or savings account. If you're using your paycheck, your employer may offer direct deposit, allowing you to allocate a portion of your salary directly to your investment account.

Select the Destination Account:

You'll need to select the investment account that will receive the automatic transfers. This could be a taxable brokerage account, an individual retirement account (IRA), or a workplace retirement account, such as a 401(k) or 403(b).

Set Up the Transfers:

Once you've determined the amount, frequency, and accounts involved, it's time to set up the transfers. Most online brokerage platforms offer straightforward processes for establishing automatic transfers. You'll need to link your bank account or paycheck to the investment account. During this step, you may also have the option to choose how the transferred funds are allocated among your selected investments.

Review and Adjust as Needed:

Automatic investing plans are flexible, allowing you to review and adjust your strategy over time. If your financial situation changes or you want to reallocate your investments, you can typically modify the amount or timing of withdrawals and contributions without penalty.

By setting up automatic transfers, you'll be able to consistently invest in your chosen ETFs without having to remember to initiate transfers manually each month. This approach helps ensure that your investments remain on track and can free up your time to focus on other financial decisions and goals.

Frequently asked questions