Automatic Investing
What Is Automatic Investing?
Automatic investing is an investment strategy that uses scheduled, recurring contributions to invest money regularly over time. Investors set up automatic deposits from bank accounts or paychecks into investment accounts, allowing investments to occur consistently without manual action.
Automatic investing is often used in retirement plans, brokerage accounts, and investment apps.
Why It Matters
Automatic investing helps investors build disciplined investing habits and reduce the temptation to time the market. By investing regularly, individuals can benefit from long-term market participation and strategies such as dollar-cost averaging.
Automation can also simplify investing and remove emotional decision-making.
How Automatic Investing Works
Investors typically choose:
- a recurring investment amount
- a schedule (weekly, monthly, etc.)
- selected investments or portfolios
The investment platform automatically transfers money and purchases the selected securities according to the schedule.
Example
An investor sets up an automatic transfer of $300 each month into a brokerage account that invests in a diversified ETF portfolio.
Automatic Investing vs Lump-Sum Investing
- Automatic investing spreads investments over time through regular contributions.
- Lump-sum investing involves investing a large amount of money all at once.
FAQs About Automatic Investing
Is automatic investing good for beginners?
Yes. It simplifies the process and encourages consistent investing.
Does automatic investing guarantee profits?
No. Investments still depend on market performance.
What strategies work well with automatic investing?
Dollar-cost averaging is commonly used with this approach.
Related Terms
- Dollar Cost Averaging
- Passive Investing
- Micro-Investing
- Exchange-Traded Fund (ETF)
- Long-Term Investing
