There has never been a better time to become an automated investor. When you combine automated investing and income investing, you have a consistent way to create a paycheck.
In this article, I will start with becoming an automated investor and dive into some of the various techniques I use across my accounts. Let’s begin.
What is automated investing? I define automated investing as the automatic cash transfer from a savings or checking account into a brokerage account.
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Now, you say, “But Josh, I automatically save money in my 401K every month!” Yes, this is automatic savings.
With automated investing, you have an investment goal of growing your index funds, dividend growth portfolio, growth stocks, or income.
How do I automate my investments? First, create a budget—and stick to it. The important part is to include your investments as part of your budget.
For example, I direct deposit $3,000 into my Wells Fargo Checkings Account. My expenses (without my mortgage) total roughly $1,000. With the rest of the budget, I allocate to various investments.
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I have $600/month going to M1 Finance, $800/month to STASH, and $150 to Fundrise. I also have investments from other accounts flowing into my brokerage accounts.
The fun of automated investing. The true magic of automated investing is that you can have it your way. You don’t just have to invest $100/week into your favorite index funds.
Let’s review various ways you can use automated investing to your advantage.
- Dollar-Cost Average into various positions.
- Sprinkle cash across various positions at once.
- Accumulate cash in your brokerage account to spend later.
- Save dividends for later.
- Invest in your Roth IRAs and Custodial accounts.
Dollar-Cost Average into various positions. One of the best uses of automated investing is to dollar-cost average into a set portfolio of stocks, ETFs, and closed-end funds.
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Buying fractional shares gives you the ability to accumulate pricy shares over time. I love STASH as the best app for fractional investing and DCA.
I use STASH for my dividend growth investing (DGI) portfolio—investing in over 25 positions every week. I put between $2-$20 in each position every week. I also reinvest dividends.
This is a set-it-and-forget-it account. In 10-15 years, I will turn off dividend reinvestment and enjoy the fruits of my DGI tree.
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Sprinkle cash across various positions at once. Investing is amazing in today’s technological world. Using M1 Finance, I can transfer $600 into one account, and it will automatically sprinkle it across as many positions as I desire.
I use my M1 Finance as an index fund, DGI, and Income portfolio all in one. I can create this mixture by making a big pie and little pies underneath.
When my $600 hits M1 Finance, it uses my target allocation percentages to direct the cash to the appropriate levels. This ensures I am buying the best-priced stocks and avoiding over-allocated ones.
Accumulate cash in your brokerage account to spend later. Yes, cash is a position. A significant cash position inside your brokerage account is just as important as stocks and bonds.
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It is wise to transfer a few hundred dollars a month to sit in cash. STASH makes this easy because each brokerage account has a cash position. You can invest in the cash position as any other stock or ETF.
I like having cash when a particular stock price crashes or spending little when documenting my dividends at the end of the month.
Save dividend for later. Another way of automated investing is dividends. You may need to stop investing because of inflation or other cash flow issues. However, your dividends keep rolling into your brokerage account.
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You can reinvest them, which is a form of automated investing. You can also collect them in cash and reinvest them later. I do a combination of both.
I directly reinvest about 70% of my dividends. Then, I take the cash dividends and reinvest most of those. I like to spend my dividends frivolously because what “gets rewarded gets repeated.”
I will spend dividends for the rest of my life, so I may as well start spending some today. Buying Sushi with AT&T (T) dividends is a great feeling. It makes me want to invest more to get more enormous dividends.
Invest in Roth IRA and Custodial accounts. Automated investing for the long term resembles a 401K the most. I have my Roth IRA and five custodial accounts through STASH.
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I invest almost exclusively in my favorite Index Fund, the Total Stock Market (VTI). I also sprinkle in a few high-yield dividend payers, so my kids can have some income in a few years.
It’s important to note that custodial accounts will automatically transfer to the children when they turn 18 or 21, depending on State regulations. Hopefully, you can roll these into some form of IRA. I have to research this as my son turns 18 in three years.
Dedicate to Automate. Becoming an automated investor takes a lot of discipline because this money will hit your personal accounts first.
If you budget correctly, you will never get a hold of this cash. I have all my brokerage money to travel on the 1st of the month.
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For STASH, I budget it out at $200/week. Therefore, I must ensure that I always have the money in my account throughout the month.
I use over seven checking accounts to avoid using my primary automated investing vehicle for daily purchases. I recommend assigning one account to be your automated investing workhouse, then avoid using it outside of that purpose.
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Conclusion. Now is the time to take investing seriously. Regular people will slowly realize that their paychecks aren’t growing fast enough.
There are many ways to become an automated investor; you can pick the one that suits you best. Then you can add another. I have five brokerage accounts, and I love them all for unique reasons.
If you can clear $100-$200/month to invest in dividends, you will watch your income increase every year. Slow and steady wins the battle, and growing your own paycheck will give you a leg up for your entire life. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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