An investment strategy that entails setting up payments to be routinely withdrawn from your checking account might sound like a questionable way to make money, but it’s actually a fairly straightforward financial strategy for creating wealth, and one that doesn’t depend on a lot of luck or magic. Here’s how it works.
With automatic investing, you’re continually putting money away for your retirement or other goals with certain amounts rather than every once in a while. Technology does the heavy lifting here so you aren’t the one making daily decisions. One way is to invest a certain sum in one or many investments that do not change. Another way is to use a robo advisor to monitor and periodically rebalance your investments in line with your risk tolerance, investment goals and time horizon.
Historically speaking, over time — not a few years, and certainly not a few months — the stock market indexes have increased in value (though past performance is no guarantee of future results). That’s why an automated investment program can be so valuable: Investors can be distracted by whatever’s going on in their lives and sometimes make financial choices powered by emotions, but with automatic investment programs, a person continues to invest.
“It's all about dollar-cost averaging, an investment strategy in which you invest the same amount of money at regular intervals,” says Andre Jean-Pierre, a financial advisor and founder of Aces Advisors, LLC, in New York City. “This ensures you buy more shares when prices are low and fewer when prices are high. As a result, you sidestep the risk of making a sizeable investment when the market hits a sour note.”