Setting Up Vanguard Etf Auto-Invest: A Step-By-Step Guide

Setting up automatic investments in Vanguard ETF is a straightforward process that can be done in a few simple steps. Firstly, it's important to understand that automatic investments are only available for Vanguard Mutual Funds and not for Vanguard ETFs. This is likely because ETF prices fluctuate constantly throughout the trading day, allowing individual investors to control transaction timing. However, automatic investing in Vanguard Mutual Funds can be a great way to streamline your finances and remove the challenge of deciding when to invest. It simplifies the process by automating recurring bank transfers into taxable or retirement accounts, helping you stay on track and increasing your chances of reaching your financial goals. To set up automatic investments, you can follow Vanguard's official instructions, which include logging into your Vanguard account, navigating to the My Accounts section, selecting Profile & Account Settings, choosing Automatic Investment, and then following the provided instructions. It's a convenient way to ensure consistent contributions towards your investment goals.

Choosing an amount of money and a frequency

When setting up automatic investments in Vanguard, you can choose from five options for the frequency of your investments: every week, every two weeks, twice each month, every month, or every year. The two most popular options are "every two weeks" and "every month" as they align well with paycheck cycles. However, you should choose the option that works best for your financial situation and goals.

You can also decide on the amount of money you want to invest during each of these intervals. For example, you could choose to invest a fixed amount, such as $500 every month, or a specific percentage of your income or savings. This amount can be adjusted as needed, but it is important to stick to a consistent investment plan to take advantage of dollar-cost averaging.

Dollar-cost averaging is a strategy where you invest a fixed amount of money at regular intervals, regardless of the share price. When the share price is high, you will buy fewer shares, and when it is low, you will buy more. Over time, this may push down the average cost of your shares. Additionally, making regular investments can help you stay on track and reach your financial goals without affecting your daily life.

Selecting a bank account or settlement fund

When setting up automatic investments in Vanguard ETFs, you have two choices for selecting the source of your funds: a bank account or a settlement fund. Here are some detailed instructions and considerations for selecting a bank account or settlement fund:

Selecting a Bank Account

If you choose to move money from your bank account, ensure that you have provided Vanguard with the correct bank account information, including the account number and routing number. This option is generally recommended as it withdraws funds directly from your bank account. You can set up automatic transfers from your bank account to your Vanguard account by selecting the "Automatic Investment" option in the "Account Maintenance" section of your Vanguard account. You can then choose the frequency of transfers, such as every week, every two weeks, twice a month, every month, or every year, depending on your preferences and paycheck cycles.

Understanding Settlement Funds

A settlement fund is a holding account where Vanguard temporarily holds your money when you transfer funds from your bank account. For example, if you transfer $100,000 to Vanguard, the funds will sit in a settlement fund until you invest them. While settlement funds can be used for automatic investments, they are not recommended as the primary source of funds, as there may be a 7-calendar-day hold on the money in the settlement fund, making it unavailable for immediate brokerage transactions.

Advantages of Keeping Funds in a Settlement Fund

Although it is generally recommended to use a bank account as the source of funds, there are some advantages to keeping funds in your settlement fund:

• You will be more likely to have money readily available to pay for purchases on the settlement date when your account is debited.
• Reducing the risk of your trades being rejected due to insufficient funds.
• Avoiding potential restrictions on your account caused by committing a trading violation.

Using a Combination of Bank Account and Settlement Fund

It is important to note that you can utilise both your bank account and settlement fund simultaneously for automatic investments. You can choose to move money from your bank account to your settlement fund on a regular basis, ensuring that your settlement fund always has a positive balance. This approach combines the benefits of using a bank account for automatic transfers while taking advantage of the advantages of maintaining a balance in your settlement fund.

In summary, when setting up automatic investments in Vanguard ETFs, you have the option to select either a bank account or a settlement fund as the source of your investment funds. Consider the advantages and potential limitations of each option and choose the one that best aligns with your investment strategy and financial situation.

Deciding on a contribution method

When deciding on a contribution method, you have two choices:

• Maximise your annual IRA contribution
• Enter a specific contribution amount

Maximise your annual IRA contribution

This is the recommended option. Vanguard will automatically calculate how much you need to invest to maximise your IRA contribution for the year. The annual contribution limit is $5,500, or $6,500 if you're aged 50 or older.

Enter a specific contribution amount

If you can't afford to maximise your IRA contributions, you can enter a specific amount. However, it's always better to maximise your contributions if you can.

Frequency

You can choose from five options for how often you want to make contributions:

• Every week
• Every two weeks
• Twice each month
• Every month
• Every year

The two most common options are every two weeks and every month, as these align with most people's pay cycles.

Start date

You can choose when you want to begin your automatic investments. The 1st and 15th of the month are common choices as they also align with pay cycles.

Stopping your plan

You can choose from two options for when to stop your plan:

• I stop this plan: Automatic investments will continue until you manually disable them.
• Specific date: You can choose a specific date to stop your automatic investments.

Setting a start date and frequency

• Choosing a start date: When selecting the date to begin your automatic investments, consider aligning it with your paycheck cycles. The 1st and 15th of the month are common choices, but you can choose any date that works best for you. This ensures that you have sufficient funds available to automate your investments.
• Selecting a frequency: Vanguard offers five options for the frequency of your automatic investments: (1) Every week, (2) Every two weeks, (3) Twice each month, (4) Every month, and (5) Every year. The most popular choices are "Every two weeks" and "Every month" as they sync well with typical paycheck schedules. However, feel free to choose the option that suits your financial situation and goals.
• Understanding the impact of frequency: The frequency you choose will have a significant impact on your investment strategy. For example, investing twice a month or every two weeks can help you take advantage of market fluctuations and potentially buy more shares when prices are low. This approach may result in a lower average cost per share over time.
• Consistency and convenience: By setting a start date and frequency, you're not only ensuring consistency in your investment strategy but also making it a convenient, hands-off process. You won't need to remember to log in and initiate transfers manually each time. This removes the emotions and indecisiveness that often come with manual investing.
• Flexibility and control: Remember that you're not locked into a specific frequency or start date forever. Vanguard allows you to adjust these settings as your financial circumstances change. You can also stop or pause automatic investments at any time, giving you full control over your investment strategy.
• Dollar-cost averaging: By setting a regular frequency for your investments, you're effectively implementing a dollar-cost averaging strategy. This means that you'll purchase more shares when prices are low and fewer shares when prices are high. Over time, this can push down the average cost of your shares, potentially increasing your returns.

In summary, setting a start date and frequency for your automatic Vanguard investments is a straightforward process that offers flexibility, convenience, and the ability to implement dollar-cost averaging. Choose a start date and frequency that align with your financial goals and remember that you can always adjust them in the future as needed.

Allocating your investment

Once you have chosen the account you wish to set up automatic investments for, you will need to detail your automatic investment preferences. You can either move money from your bank account or your settlement fund. The former option is recommended, as it withdraws funds straight from your bank account. The latter option is a settlement fund where Vanguard holds your money when you transfer it from your bank account.

You can then choose how much to contribute. You can either maximise your annual IRA contribution, where Vanguard will automatically calculate how much you need to invest to reach the limit, or you can enter a specific contribution amount.

You can then choose the bank account you wish to automate your investments from, and the frequency of your contributions. You can choose for this to be every week, every two weeks, twice each month, every month, or every year. The two most common options are every two weeks and every month, as they align with paycheck cycles.

Finally, you can allocate your investment. You can either allocate by percentage or equally. The former option allows you to allocate a certain percentage of your automatic investment to specific mutual funds. For example, you could allocate 70% of your contribution to VTSAX and 30% to VBTLX. The latter option equally distributes your automatic investment among the funds you have selected. For example, if you select VTSAX and VBTLX, each mutual fund will receive 50% of your contribution.

Frequently asked questions