When it comes to investing, it’s true what they say: slow and steady wins the race. If this describes your investment strategy, automatic investing plans may be right up your alley. An automatic investing plan lets you buy mutual funds, stocks, and exchange traded funds (ETFs) according to a set schedule and dollar amount and not based on the hunch that a certain stock is going to outperform the others on a certain date (a process also known as Dollar Cost Averaging). Automatic investing takes the emotion out of the process of trading stocks and replaces it with a consistent, long term strategy to building wealth.
Frequency Of Investments
First, determine how frequently you want to invest: weekly, biweekly, or monthly. Not all companies that allow automatic investing will have every option for scheduling, but Sharebuilder.com (offered through ING Direct – open an ING Direct High Yield Savings Account
) allows you to create an investment schedule based on the frequency you choose. Note: I actually prefer Tradeking to Sharebuilder, but either will suffice.
If you set up automatic investment plans with individual mutual fund companies, you may be required to invest on a monthly basis with a minimum dollar amount of $100. Do your research before signing up, and choose a plan that allows you to invest the dollar amount you are comfortable investing, at the frequency you desire.
How Much To Invest
Next, decide how much you want to invest according to your schedule. In general, you should invest as much as your monthly cash flow consistently allows. Note that most mutual fund companies require a minimum investment per month.
Connect Your Investment Account
Once you’ve made your investing decisions, you need to connect the investment account you select (like Sharebuilder, Tradeking, or Vanguard for instance) with your bank account so they can fund your investments. You can use a checking or savings account, and most companies will fund your investments through your bank account at no additional charge.
Select Your Investments
You choose which mutual funds, stocks or ETFs you want to invest in and how much of your automatic investment to allocate to each fund. You can change them whenever you want.Keep an Eye on It – But Not too Close!
Once you’ve got your automatic investment plan set up, you don’t need to watch it like a hawk daily. All investment values will fluctuate from day to day and you’re in it for the long-haul rather than trying to time your trades based on the fluctuations of the market. A few times each year, take a look at the portfolio value and adjust your automatic investment plan based on how the funds are performing.Automatic investment plans make it possible for everyone to get started investing – even if you don’t have time or desire to follow the daily changes in the market. It’s a long term investment plan to building wealth. You can reduce your risk by setting up your investments as part of a diversified portfolio, and make changes based on the performance of your investments.
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