Streamline Your Financial Investments in Five Stages
Many individuals have noble intentions when it comes to saving for their retirement. However, even the most well-thought-out strategies can go astray, especially if one's investment habits aren't as regular as purchasing groceries or paying bills.
To prevent falling short of your investment objectives, which might delay your retirement, you can automate your investment activities. Although this requires some initial extra effort, automation ensures that you continue investing at a consistent pace. Learn how to automate investments in five simple steps.
The Steps
Five Simple Steps to Automating Your Investments
You can automate your financial decisions by following these five simple steps:
- Step 1: Automate investments in an employer-sponsored retirement account.
- Step 2: Combine your investment accounts.
- Step 3: Automate investments in other retirement accounts.
- Step 4: Set up an automatic investment plan.
- Step 5: Automate dividend reinvestment.
Step 1
1. Automate Investment in an Employer-sponsored Retirement Account
One of the simplest automatic investment options is a job-related retirement plan such as a 401(k). If your company offers this benefit, make the most of it. At a minimum, strive to take advantage of your company's matching contribution. Many companies will match between 50% to 100% of every dollar you contribute, up to a certain percentage of your salary. By not availing of this opportunity, you're missing out on a portion of your overall compensation package. And, in the process of ensuring you receive your full work retirement benefit, you've also facilitated the automation of your finances.
Most employer matches cap out before you reach the 401(k) contribution limit, which were $23,000 in 2024 for those under 50 (increasing to $23,500 in 2025) and an additional $7,500 catch-up contribution for those over 50. However, that doesn't mean you can't max out this plan if you prefer its investment options. Doing so is a smart way to invest automatically in the stock market.
Step 2
2. Combine Your Investment Accounts
The average person changes jobs around every five years. Unfortunately, many forget to take their 401(k)s with them. The Economic Policy Institute estimated in May 2023 that Americans have left behind 29.2 million old 401(k) plans with $1.65 trillion in assets from their old jobs.
While rolling over an old 401(k) into an IRA can be a hassle, this move offers several benefits:
- Managing your own investment portfolio is easier when you have all your old work-related retirement accounts combined into one account.
- It could save you money since some 401(k) plans have higher fees.
- It could improve your returns if you left your old 401(k) funds in a lower-return investment.
Apart from combining your old work-related retirement accounts, you should also consider consolidating any investment accounts you might have with multiple brokers. Placing everything in one place will make it simpler to simplify and automate your investments.
Also, this is the perfect time to consider setting up new automatic investment accounts. For instance, if you have children, you might want to set up a 529 plan to aid in their educational expenses. You should also check if you're eligible for a health savings account (HSA).
Step 3
3. Automate Investments in Other Retirement Accounts
You could max out your 401(k) plan and call it a day. However, many choose to stop at their employer match because they'd rather put the rest of their money into a different investment vehicle. Sometimes a 401(k) might not be the best automated investing option due to high costs or limited investment choices.
If you're wondering how to automate investing, another smart move is to arrange for a monthly transfer to your individual retirement account (IRA). Consider maxing out your IRA. For 2024, the IRA contribution limit was $7,000, or $8,000 if you were older than 50. So if you wanted to max out your IRA by making a monthly deposit, you'd set the automatic transfer at $583.33 a month if you're younger than 50 (or $666.66 a month if you're over 50).
If you have additional money you'd like to invest beyond maxing out your retirement plans, consider setting up additional automatic deposits to your consolidated brokerage account, 529 plan, or your HSA.
That way, the income distributions won't pile up in your account, accumulating minimal interest until you decide what to do with them. Leveraging the power of compounding, automatically reinvesting income distributions can significantly increase your returns in the long run.
Related investing topics
**#### How to Invest in Index Funds
Index funds mirror a specific index and can be a smart choice for investing. Get a quick overview of index funds here.
7 Ways to Invest $1,000
One thousand dollars can generate impressive returns if invested wisely.
Bull vs. Bear Market: What's the Difference?
Which market is the market mimicking, and what do each represent?
How to Find Investment Ideas
Fresh investment ideas are key to making money in the markets. Look for inspiration here.
Why automate?
Why automate your investments?
To aid in automating your investing strategy, you can always consult with a financial consultant for advice. While some prefer actively managing their investments, others prefer to be lazy investors due to a lack of interest or time. Automating your investments complements buy-and-hold investing, which is the most reliable path to building substantial wealth over time.
Our Website features a disclosure statement.
The first sentence could be: "By automating your investment activities, you can ensure that you consistently invest money, similar to how you regularly purchase groceries or pay bills."
The second sentence could be: "Automating your investments into an employer-sponsored retirement account like a 401(k) can help maximize your company's matching contribution, potentially increasing your overall retirement savings."
