Automated investing builds long-term wealth by consistently investing in low-cost index funds without the stress of picking stocks or timing the market.
To start, set up a simple system: open an investment account, pick one broad index or target-date fund, automate monthly contributions, and let compound growth do the work. This approach avoids hidden fees, emotional mistakes, and unnecessary complexity.
What Automated Investing Really Is (and Why You Need to Start Today)
Automated investing means setting up your money to automatically buy stocks and bonds each month without you having to think about it.
Instead of trying to pick individual companies like Apple or Tesla, you invest in simple funds that own stock in hundreds—or even thousands—of different companies. A set amount of money from your paycheck is then invested into those funds on the same day every month.
Over time, you leverage compound growth to build your wealth while you focus on living your life, without having to constantly obsess over stock prices.
A simple example of how automated investing works
Let’s say you earn $4,000 a month and decide to automatically invest $400 into an index fund that owns a part of every major company in America. On the 15th of each month, that $400 is transferred from your paycheck into your investment account and used to buy more shares of the fund.
As those companies generate profits and the economy grows, your investment grows with it. After ten years, you’ll have invested $48,000, but thanks to compound growth, your account could be worth over $65,000. The best part of this approach is that you never need to research stocks, follow the news, or make complicated decisions. The system runs itself while you focus on other parts of your life.
Why Smart People Choose Automated Investing Over Stock Picking
A lot of people think the secret to investing is buying low and selling high, but studies show that 90% of people who try to time the market end up losing money.
Automated investing is a reliable approach because you buy consistently, whether prices are up or down, which smooths out the market’s volatility. When the market crashes and everyone else is panicking, your system automatically buys the shares at a discount. And when prices are high and there’s stock market hype, automated investing prevents you from making impulsive decisions at the worst possible time.
This approach removes emotions from the equation, which are often the biggest threat to long-term wealth. This is why even Warren Buffett and Nobel Prize-winning economists recommend this approach: It consistently outperforms expensive fund managers and individual stock pickers in the long run.
The hidden costs that destroy most investment returns
Most investors don’t realize how much they’re losing to hidden costs. These are some of the most significant ones:
Expensive fees: Many mutual funds charge 1% to 2% in annual fees, which can cost you hundreds of thousands of dollars over your lifetime compared to low-cost index funds.
Frequent trading: Constantly buying and selling stocks creates tax bills and transaction fees that can eat up 2% to 3% of your returns each year.
Emotional decisions: Emotional buying and selling often cause investors to buy high during market peaks and sell low during crashes, wiping out decades of potential growth.
For most people, it’s smarter to focus on automated, low-cost investing instead of stock picking, simply because you’re letting your money grow steadily without the emotional swings or hidden costs that can derail your wealth.
7 Simple Steps to Set up Automated Investing (Even if You Know Nothing About Money)
Step 1: Open an investment account at a trusted company
Once you’ve decided to start, you need an account specifically for investing, separate from your checking or savings accounts. Companies like Vanguard, Fidelity, and Schwab are solid choices, as they’ve been around for decades and charge very low fees.
Opening an account is free, takes about 15 minutes online, and is similar to opening a bank account. You’ll need your Social Security number, address, and employment information. Start with a basic taxable investment account, which lets you deposit and withdraw money anytime without penalties.
If this is your first time investing, it might be helpful to check out my quick and easy guide to investment.
Step 2: Learn what index funds are and why they work
An index fund gives you tiny pieces of hundreds or even thousands of companies all at once. Instead of trying to pick individual winners like Apple or Google, you own a small share of every major company in the U.S. When the overall economy grows, your index fund grows too.
Index funds are cheaper than most other investments because no one is paid to pick stocks. The most popular option tracks the S&P 500, which includes the 500 biggest companies in America. By investing in index funds, you get broad market exposure at low cost, letting your money grow steadily without the stress of picking individual stocks.
Step 3: Choose one simple index fund to start with
Look for funds with names like Total Stock Market, S&P 500, or a Target Date Fund followed by your planned retirement year. Target date funds are great for beginners because they automatically adjust your mix of stocks and bonds as you age.
If you’re young, consider a target date fund around 40 years in the future, such as “Target Date 2065.” Check that the expense ratio is under 0.20%, which means you pay less than $2 per year for every $1,000 you invest. You don’t need to juggle complicated strategies or multiple funds—all you need is one to start.
To pick your first fund, feel free to check out my guide on the Best Vanguard Index Stock & Bond Funds.
Step 4: Decide how much money you can invest each month
Start with whatever you can afford, even if it’s only $25 or $50 per month. A good benchmark is to use the 20% rule as a goal: aiming to invest 20% of your take-home pay. But if you can’t afford that much, it’s okay to start smaller and work your way up to it.
Review your monthly budget and identify any money leaks that go to things you do not truly need or value. Even the smallest amounts matter; what feels minor today can grow into meaningful wealth tomorrow when invested consistently.
Step 5: Set up automatic transfers from your paycheck
Contact your employer’s payroll department and ask about direct deposit splitting. This allows part of your paycheck to go directly into your investment account before you even receive it.
If direct deposit splitting is not available, set up your own automatic bank transfers for the day after you get paid. Choose the same date each month so the money moves directly into this account before you’re tempted to spend it on something else.
When it comes to investing, discipline is key. Treat these transfers like any other bill that must be paid, not something optional that you can skip.
Step 6: Automate the actual fund purchases
Once your transfers are set up, log into your investment account and schedule automatic purchases of your chosen index fund for the same day each month. This way, your money starts working for you right away, without you needing to remember the investment.
Automating purchases also takes the emotion out of investing. You won’t be tempted to “time the market” or delay buying when prices feel high. Instead, you practice consistent investing, which smooths out ups and downs in the long run.
Most investment companies offer free automatic purchases and send email confirmations so you can track your contributions without extra effort. You can adjust the amount or pause purchases if your financial situation changes, but treat this system as the backbone of your investing plan. Only in the case of real emergencies should you consider tweaking it.
Step 7: Set up a quarterly review system
Check your investment account every three months. During these reviews, look at your total balance and how much you contributed. Consider increasing your monthly investment if you get a raise or your expenses decrease.
Resist the urge to check daily or weekly, because short-term ups and downs can tempt you to change your plan. The whole point of automated investing is to focus on long-term growth over the years, without being influenced by daily or monthly fluctuations that won’t move the needle.
Understanding Robo Advisors and Deciding Whether You Need Them
Robo advisors are companies like Betterment, Wealthfront, and Schwab Intelligent Portfolios that automatically invest your money using computer algorithms.
If you use a robo advisor, you can skip many of the steps above because much of the process is automated. They ask questions about your age, goals, and risk tolerance, then select a mix of index funds and rebalance your portfolio automatically.
Most robo advisors charge 0.25% to 0.50% per year, which comes out to $25 to $50 annually for every $10,000 you invest. The main benefits of using robo advisors are automatic rebalancing and tax-loss harvesting, but these features are most valuable for individuals with large account balances, usually over $100,000.
If you’re considering a robo advisor, here’s a practical guide that may be helpful: Betterment versus Wealthfront (how to choose between both of them).
When robo advisors make sense
Robo advisors can be useful if you have more than $50,000 to invest and want fully hands-off management, as they handle rebalancing and tax optimization automatically.
Some people prefer paying a small fee to avoid thinking about their investments rather than learning to manage them on their own. Robo advisors can also serve as training wheels for nervous investors who want professional guidance while they’re still learning about investing.
If you plan to invest across multiple account types, like a 401(k), IRA, and taxable accounts, robo advisors can coordinate your investments across all of them. To make a better decision based on your goals, I dive deeper into the pros and cons of robo advisors.
When you should skip robo advisors and do it yourself
Most beginners can achieve 90% of the same benefits by buying a single target-date fund and setting up automatic purchases. The fees for robo advisors may seem small, but over decades they can add up to tens of thousands of dollars, especially as your account balance grows.
Learning to invest in simple index funds takes only a few hours and gives you complete control over your money for the rest of your life. You can always switch to a robo advisor later if your situation becomes more complex, but starting simple and doing it on your own saves money and builds your long-term financial knowledge.
How to Decide if Automated Investing Is Right for You
Automated investing works well for most people, but the best choice for you depends on your financial goals, how much time you want to spend managing money, and your comfort with risk.
When automated investing makes perfect sense
Automated investing is ideal for you if:
You have at least ten years before you need the money, giving compound growth time to work despite short-term market volatility.
You prefer spending your time on career advancement, relationships, or hobbies rather than researching individual stocks and following market news.
You have a consistent income that allows for regular contributions, even if the amounts are small at first.
You understand that boring investments often outperform exciting ones and are comfortable with average market returns rather than trying to beat the market.
When you might need a different approach
Automated investing may not be right if:
You have less than five years before needing the money. In that case, high-yield savings accounts or CDs (Certificate of Deposit) provide better security than the stock market.
You genuinely enjoy researching companies and following markets, though this could be more for entertainment than a reliable wealth-building strategy.
Your income is highly variable or unstable. Building an emergency fund should come first before investing in volatile assets.
You are a very high earner who could benefit from complex tax strategies that require professional management rather than simple automated approaches.
Your automated investing action plan
If you’re ready to get started with automated investing, the first step is simple: Open an account with a trusted provider like Vanguard, Fidelity, or Schwab. From there, choose a total stock market index fund and set up automatic monthly contributions, even if it’s just $50 at first. Next, automate the purchases within your account so your money doesn’t sit idle.
Finally, put a reminder on your calendar to check in once a quarter—not every day. That way, you’ll steadily build wealth without the stress of constant monitoring.
The true benefit of automated investing isn’t just financial gain; it’s the freedom it gives you. By setting your plan on autopilot, you buy back time, energy, and peace of mind. Instead of stressing over market swings or second-guessing every decision, you can focus on building the life you want: advancing your career, nurturing relationships, and pursuing the things that make you happiest. With steady contributions and the power of compound growth, your money works quietly in the background while you set yourself up for a Rich Life that grows right alongside you.
