Imagine setting your investments on autopilot, freeing up your time while your money works hard for you. Intrigued? That's the beauty of automated investing
It’s like having a personal assistant that manages your investments 24/7 based on your financial goals and how you want to get there. But how does it work?
In this latest episode, we explore automated investing and its benefits for the investors who want to keep wealth-building simple. You will discover how automation can help you plan a set and forget strategy and dollar-cost averaging without all the hassle. Finally, we give you basic guidance on which platforms you can use to set up an automatic investment plan.
What is a set and forget strategy?
Before we jump into how to automate your investments, let’s talk about the set and forget strategy. It’s part and parcel of why automating your investments is highly encouraged. (We also talked about the set and forget strategy in our episode on investing strategies, so check it out.)
In 2023, Fidelity conducted a study that revealed something quite surprising. Their most successful investors were either inactive or no longer with us. At first glance, it may seem disheartening if you’re the kind of person to see the glass half-empty. However, the study isn't suggesting that you have to be six feet under to reap the rewards of investing – far from it.
The Fidelity study actually proves a valuable point. The set and forget strategy works for almost everybody. It showed that buy-and-hold investing historically does better than always fiddling with your investments based on emotions or FOMO.
Let’s unpack everything we’ve just said there.
Remember the last time you went on a road trip? Did you enjoy checking the map on your phone almost every minute? How about the part where you analysed every intersection? It wasn’t exactly the most exciting part of the trip, right? But you sure remember wishing that you had everything done for you.
In set and forget investing, your investment plan acts as your co-pilot. You define your financial goals and portfolios and let the co-pilot invest for you. It’s a system that runs on itself. There’s no need for constant checking, time-consuming analysis, and emotional tinkering.
Set and forget investing liberates your time and mental energy for other things—like actually going on a road trip.
In real life, however, the veteran adventurer would counter that detours make a trip unforgettable. The spontaneity keeps things fun and interesting. When you take that attitude to investing, you might be tempted to tinker with your investments along the way.
Maybe you're enticed by the latest thematic ETFs that promise extraordinary returns. Or perhaps you get swayed by the temptation of cheaper brokerage fees or the allure of finding a "better ETF.” Who know? You may have seen that YouTube ad on how to become a millionaire with cryptocurrency.
But this is where the analogy to a road trip stops.
There’s real money you can potentially lose for nothing when you try to be spontaneous in investing. Embracing the set and forget strategy means resisting the urge to constantly fine-tune your investments. It means staying true to your original plan and letting it ride through market ups and downs.
Benefits of automating your savings and investing
Automating isn’t just for investing; you can apply it to just about any money problem. Picture this: you've just finished a long day at work, and you need to handle your life admin. However, the last thing you want to do is juggle your personal finances. That's where automation comes in. Automating your finances can save you time, headaches, and ensure you never miss a bill payment or investment contribution.
Like many of us, Ana knows automation is a simple yet effective way to stay on top of her financial obligations. She has set up automatic payments for most of her bills, her mortgage, and even her credit card repayments. With automation, she doesn’t have to deal with the hassle of manual transfers and due date reminders.
But what about investing? Tash uses automation to ensure that a portion of her income goes to investments without fail. This set and forget approach takes the stress out of investing. It also allows her to stay consistent, even during busy times.
Here’s the breakdown of the reasons why we prefer to automate savings and investments:
Emotional discipline
The ups and downs of the sharemarket can oftentimes feel like the difficult part of long-term investing. It's easy to feel fear or excitement in the moment and do something silly. We can’t blame you—we all want to feel in control with our money. So what can you do?
Automated investing provides the emotional seatbelt you need to ride out market downturns. Instead of holding on tightly to the safety bar, you choose to let go and trust the process. You relinquish control to a system carefully designed to let you enjoy the ride. You don’t commit emotional and costly mistakes because automated investing keeps you disciplined and focused.
Time efficiency
For most employed Australians, every hour means a minimum of $23.23 earned (at least according to our Fair Work Ombudsman. Outside work hours, we’re even busier caring for our loved ones or doing things that help us decompress. Precious time for these aspects of our lives goes beyond any measure of wealth. There’s simply no greater reason to constantly monitor and tinker with investments.
When you automate investing, your money continues to work for you in the background while you enjoy a rich life lived outside the spreadsheet.
Automated dollar-cost averaging (DCA)
At the heart of the set and forget strategy lies a powerful technique called dollar-cost averaging (side note: we delved into this technique more deeply in our recent investing Q&A). Here’s what it means: invest a fixed amount of money at regular intervals, regardless of the price.
Dollar-cost averaging (DCA) achieves two remarkable outcomes. Let's say you invest $500 every month. When the market is down and prices are lower, your $500 buys more at $100 per XYZ share. DCA can feel like finding a sale and snatching up bargains even with your strict budget.
Conversely, when prices are higher at $150 per XYZ share, you acquire fewer shares. However, the good news is you're cushioned from the full impact of volatility. DCA smooths out the peaks and valleys, providing stability for your portfolio.
If you’ve been following us from day one, you know we are raving fans of dollar-cost averaging. But has that always been our strategy?
Ana opted for lump sum investing initially, a common choice for many beginners. However, after monitoring the market and gaining confidence, she transitioned to regular investing. It's a classic case of setting and forgetting, allowing your investments to grow steadily over time. By embracing dollar cost averaging, Ana found the sweet spot between simplicity and effectiveness.
Tash took a slightly different route. She began her investing journey as a casual investor. She made random investments around the time that the election of Donald Trump had many people on edge. It wasn't until 2020 that Tash discovered the power of automated investing. Prior to that, she had already embraced automation in other aspects of her financial life.
How to automate your investing
Automated investing brings simplicity and convenience to the forefront. And it’s important to find an investment broker that does exactly what an automatic investment plan is meant to do for you. So, who are the major brokers in Australia when it comes to automatic investing?
We'll focus on three brokers: CommSec Pocket, Vanguard Personal Investor, and Pearler. These brokers make it easy for investors of all stripes to set up automatic investments. They update their offers all the time, so head to their websites to find the latest on terms and fees.
CommSec Pocket
Let's start with CommSec Pocket – the broker that knows simplicity is key. They offer a selection of seven ETFs (exchange-traded funds) to choose from. What's great is that their brokerage fee is as low as $2 for investments up to $1,000.
Although the minimum investment is $50, it's worth considering investing a bit more to make the fee worthwhile. CommSec Pocket makes it hassle-free for investors of any experience to set up automatic investments.
Vanguard
Vanguard is a well-established name in the investing world. The best part? When you buy Vanguard ETFs through the Vanguard Personal Investor platform, there are no brokerage fees. However, keep in mind that there is a $9 fee when you sell.
To get started, you'll need a minimum initial investment of $500. If you're interested in automating your investments, you can start with just $200. While they're not CHESS-sponsored, Vanguard offers a reliable platform with a range of ETFs to choose from.
Pearler
Moving on, we have Pearler – the platform that gives you its own take on automatic investing. If you use Pearler, you can choose between two products: Shares and Micro.
With Pearler Shares, you can automate your investments starting from a minimum of $650. Plus, since Pearler Shares is CHESS-sponsored, you can have peace of mind about the security of your investments. When it comes to brokerage fees, it's either $6.50 per transaction or $5.50 if you choose to prepay. The brokerage fees may also vary depending on the number of different shares you purchase.
There are three main options for auto-investing you can choose from:
1. Lowest Share
Do you have a target percentage for each ETF in your portfolio? With this popular option, you can invest in the ETF that's furthest away from its target percentage. Allocating your percentage targets can be done easily when you set up auto-invest from your dashboard. And the best part is you only pay one brokerage fee per transaction. That's why a whopping 97% of Pearler’s community members choose this auto-invest option.
2. Rebalance Your Portfolio
Feeling hands-off but still want your portfolio to stay on track? This auto-invest option adjusts your investments to match your target percentages for each ETF. If you have multiple ETFs, you might pay more than one brokerage fee. Around 2% of Pearler investors find this option fit for their investing strategy.
3. Equal Invest
For those who like it equal and fair, this option might fit your strategy. It spreads your investment evenly across your portfolio. Let’s say you have four ETFs in your target portfolio. If you invest $500/week, the Equal Invest option will automatically invest $125 into each ETF. Just remember, there will be a brokerage fee for each ETF, so it's more suitable for larger investment amounts.
Instagram Q&A
We’re answering some questions from our Instagram Q&A. If you want your questions answered next, keep an eye on the Get Rich Slow Club Instagram account.
Question 1: Are there normally greater fees related to automating your investments?
In general, the brokerage fee remains the same whether you're manually investing or auto-investing. As for Pearler, the fee for auto-investing itself doesn't change. However, you will be charged separate brokerage fee for each share or ETF you choose. So, if you decide to buy three ETFs, you'll have three brokerage fees on your tab.
Question 2: Do you always buy the same ETF? How do you know when it's time to change ETFs?
To answer this, Tash sheds some light on her personal strategy. In her auto-invest portfolio, she sticks to buying one ETF each time. Whether you buy the same ETF or multiple depends on the ETF's focus and your investing strategy.
For instance, Tash has a well-diversified portfolio of ETFs. She has an international ETF, an Australian ETF, an emerging markets ETF, and a small companies index ETF. If you're curious about asset allocation and want to explore this topic further, be sure to check out Episode 3 of our podcast!
Now, let's talk about how ETF selection works on Pearler’s auto-invest feature.
It depends on how your target portfolio is set up. So, let’s use our lowest share auto-invest option as an example.
Usually, the ETF that deviates the most from your target allocation will be purchased to align with your desired portfolio. Sometimes, the same ETF may still be furthest from your portfolio when it's time to auto-invest. In such cases, you may end up buying the same ETF multiple times in a row until it gets closer to its target allocation.
Take action
Give yourself a pat on the back! You've just learned the art of automated investing and streamlining your path to financial freedom.
And now it’s time to take the first step. If you’re game, automate one of your finances – whether it's your credit card payments, bill payments, or investment contributions. The sooner you start, the sooner you'll experience the magic of automation.
If you're new to investing, be sure to check out our first 10 episodes to gain a solid foundation in the world of wealth creation. And if you found this episode helpful, please rate us 5 stars, write a review, or share it with a friend. We're here to support you on your journey to financial success.
Follow us on Get Rich Slow Club, or connect with Tash at @tashinvest and me at @anakresina.
Happy investing!
Tash & Ana
