Estimate Time5 min

Help your money grow with automation

Key takeaways

  • Automating your saving and investing simply means establishing regular transfers into your investment account. In some cases, you can have the cash automatically invested for you.
  • Taking the decision points out of the saving and investing process can help ensure that you do both regularly.
  • Starting with a financial plan can help you determine how much to save and how to invest to reach your goals. Using automation can help put your plan into action.

Having one less thing to think about can free up your time and lower your overall stress. For instance, inventions like the dishwasher and washing machine revolutionized life at home—few people long for the days of manually scrubbing clothes. Even the programmable coffee maker was a significant step forward in convenience, allowing tired people to add water and coffee to the machine before bed in order to wake up to a steaming hot cup.

Similarly, putting your saving and investing on automatic is a small change that can lighten your mental load—and it may significantly impact your net worth over the long term.

What does automated investing mean?

Automated investing is the practice of contributing money to your investment accounts on a regular basis through direct deposit from your paycheck or recurring bank transfers. The idea is to establish this routine of saving and investing regularly with no extra effort on your part.

Making it automatic can help keep your savings plan on track no matter what else is going on in your life. Not only can you make saving automatic, you may be able to make investing automatic as well.

Automated investing benefits

  • Reduces the temptation to spend
  • Reduces the likelihood that you will overreact to market ups and downs
  • Avoids spending time on an activity you may not enjoy that saps your brain power (thinking about money and investments)
  • Eliminates the temptation to try to time the market (which history suggests reduces investor wealth)
  • Helps your saving and investing stay on track while you live your life

Why automating investing and savings works

Automating your savings doesn't sound like a big investing insight. But it's a small trick that actually works because permanently changing behavior is hard. "People tend to stay the course that they’re on. This means that if you can make the decision to start, it’s easier to continue. But making decisions can be hard, too; automation means you only have to make the decision once," says Brianna Middlewood, director of behavioral economics research at Fidelity.

Think about the most effective automated investment plan around: the workplace savings plan. The money you contribute never hits your bank account. Since you don't see it come in or go out, you don't think about it. After the account is set up, all you need to do is check in and marvel at your savings progress—and maybe rebalance your investments as necessary.

When it comes to investing outside of the workplace plan, you'll just need to open an account, if you don't already have one, choose investments, and set up the transfer of money. Those steps may be easier than you think.

Read Viewpoints on How to start investing

Saving regularly and investing your savings can be a powerful combination. The illustration below shows the potential outcome after saving and investing consistently over time.

Automated investing may be able to help you reach big goals. After 5 years investing $100 per month into diversified portfolio could help you build a nest egg of $6,300. After 10 years, it could be $17,000. Investing $500 per month could help you save $35,000 after 5 years or $84,900 after 10 years.
Hypothetical illustration. Each scenario assumes money is deposited/contributed at the end of each month with an annual average rate of return of 7%. The ending values do not reflect taxes, fees, or inflation. All accumulated savings amounts are shown in future (nominal) dollars and rounded to the nearest 100. Your own account may earn more or less than this example and income taxes will be due when you withdraw from your account. Investing in this manner does not ensure a profit or guarantee against a loss in declining markets. See the footnote labeled Methodology for more information. Past performance is no guarantee of future results. Source: Fidelity

What's the best way to automate your investing?

It can make sense to start with a financial plan. It doesn't have to be extremely detailed or extensive if you're just starting out—but the idea is to understand how much you need to save, or how much you have available to save, and then how you should invest that money. And you may have several different accounts that are invested differently to reach separate goals.

Read Viewpoints on 3 keys to choosing investments

Here are a few options:

Recurring investments from your paycheck
Your employer may offer the ability to set up direct deposit from your paycheck into multiple accounts. You can have part of your check sent to a bill-paying account and part to an investment account if that's available. Once the money is in the investment account you can move it into your investments or you may be able to set up automatic investments that could move the money into your funds for you.

A recurring transfer from your bank account
If your investment account is at a different institution, you can generally set up transfers on either end—from the bank or the investment account.

An automated investment plan in your investment account
At Fidelity, you can set up automatic investments into funds you already own in your brokerage, retirement, 529 savings, or other eligible retail Fidelity accounts. The investment can be made from the cash available in the account or by linking to a bank account.

A managed account 
Once your account is set up, you can add extra money at any time—including through direct deposit or recurring transfers. Then the funds will be invested according to your investment plan. Managed account options include an affordable robo advisor, an all-stock portfolio with tax-loss harvesting built in, and access to full-service investment advisors who can help with planning and investing.

Overcoming investment reluctance

Investing can be complicated and it can be scary for a lot of people. There are many small obstacles your brain presents as reasons to avoid doing it. These obstacles are called cognitive biases and they're patterns of thinking our brains rely on to make quick decisions.

For instance, "One bias is 'loss aversion,' or people’s tendency to be more sensitive to the danger of loss than they are to the possibility of gains. There’s also the bias we call 'temporal discounting.' This refers to people’s tendency to place greater value on getting money today versus waiting for more in the future," Middlewood says.

Studies have found that if you ask some people if they would like $100 today or $125 in one year, many people will take $100 today instead of more money later. A bird in the hand is worth 2 in the bush, as the old saying goes.

Then there's the question of timing. Investors often delay getting into the market on the hope that there will be a better time to invest. But research has found that as soon as possible is generally the best time because attempts to time the market tend to reduce long-term returns. Remember the old saying, "it's about time in the markets, not timing the markets."

Read Viewpoints on 7 investing myths and realities

"These and other biases aren’t necessarily bad, but they can make people shy away from investing, which comes with embracing risk of loss and waiting for future payoffs – things humans often struggle to do," Middlewood says.

That's why making it automatic can help. You make the decisions once and then move on with your life—if you don't think about investing again for 3 months, your savings plan is still on track.

"From a psychological standpoint, automation is a way to combat the human biases that may hamper your ability to decide whether to invest, how much to invest, how often to invest, and so forth. That said, the downside of inertia here is that some people make the choices once and never update. Pair automation with a reminder to check in on your savings goals later, and avoid another human tendency, forgetfulness," says Middlewood.

Smart automation can make investing easy

Fidelity Go® offers low-cost professional money management.

More to explore

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

This hypothetical example assumes the following: (1) $0 in savings to start with (2) post-tax contributions of $100, $250, or $500 monthly at the end of the period for 5 or 10 years; (3) An annual rate of return of 7%. (4) The ending values do not reflect taxes, fees, or inflation. If they did, amounts would be lower. Systematic investing does not ensure a profit or guarantee against a loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for 7% annual rate of return also come with risk of loss.

All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Indexes are not illustrative of any particular investment, and it is not possible to invest directly in an index.

Past performance is no guarantee of future results.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Optional investment management services provided for a fee through Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser and a Fidelity Investments company. Discretionary portfolio management provided by its affiliate, Strategic Advisers LLC, a registered investment adviser. These services are provided for a fee. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917