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Automate Your Way To Wealth

Automate Your Way To Wealth


Build A Set It And Forget It Mentality

Today I will write about something that I have been touching on in many of my posts. The following article discusses the power of an automated investment plan and how it will keep you on track. We also discuss ways to have investments drawn automatically from your paycheck to make it easier for you.

Here are a few of the things I want to talk about in this article.

  • What Is An Automated Investment Strategy
  • What Is Behavioral Finance And Why Does It Matter
  • Why It Is Important To Set Up A Self Managed Investment Strategy
  • Mental Fatigue And How We Will Overcome it

This will be quite different from the other articles that we’ve written in the past, and we are going to focus on the mental side of investing. Just like working out, the decision-making process is like a muscle and must be worked on if you wish to get better at it. There is such a thing as mental fatigue as well, and you probably face it every day. You will learn why that is important when we set up a focused investment plan for the future.

What Is An Automated Investment Strategy

When we talk about an automated investment strategy, we are looking for a portfolio that you have already built. We will use a “set it and forget it” method of investing. This is important because it is going to take the emotion out of the process of investing.

What you need to do is set up a portfolio that meets your current risk tolerance. You can always adjust it in the future if your desired risk changes, so don’t stress out today. The goal here is to just get the portfolio built.

Once you have the portfolio structured how you want, this is when you start setting up an automatic purchase plan at your broker-dealer. If they don’t allow an auto-draft, you can work with your bank to create a bill-pay feature that sends out a payment on a specific day each month.

You want to have your investments automatically set up because it takes the burden off your shoulders to make that decision each month. You subconsciously get to the point in your mind that your investment each month is just another bill payment.

Behavioral Investing And Why It Matters

What is Behavioral Finance?

It is research that has been done to show that there are psychological influences that go into investing. Your thoughts and feelings impact how you invest your assets or if you do at all. In a perfect world, logic alone would dictate whether you should invest in the markets.

When you allow your emotions to make your decisions for you and remove your knowledge and understanding, more often than not, you lose. This could be you attempting to time the market. Or perhaps you simply don’t feel comfortable because the markets are at all-time highs, and you’re just waiting for a correction. It doesn’t matter what the reason; when you let influences outside of logic decide your investment strategy, you are often left holding the bag.

The biggest issue in 2008 with the market crash was that many investors decided to get out of the markets entirely. This harmed their assets by causing them to capture the brunt of their losses. Though the markets had recovered by March of 2009, many investors took significantly longer to get back to even. This is because they sat in cash waiting for the perfect time to re-enter the markets.

If an individual investor continued to invest through the 2008 market crash, by the time the market had hit its previous high, they would have been better off in their portfolios. This is why having a plan and sticking to it trumps investing based on emotions.

So, build a plan, create it to be self-managed, and then forget about it. You will thank yourself in 20 years.

Why It Is Important To Set Up A Self Managed Investment Strategy

It is essential to set up a self-managed investment strategy if you’re going at this on your own because it keeps you from making consistent investing decisions. We are only able to use so much mental power each day. Each time we are presented with a decision, our mental prowess declines, making it harder to make the next one.

This is one reason why research explains it is far easier to work out in the morning when your mind is fresh than trying and forcing yourself to go to the gym after work. You have just spent your entire day answer questions and facing challenges that it is far easier for you. In essence, you’re mentally worn out.

By setting up a managed investment strategy, you no longer face mental fatigue. You aren’t questioning if what you’re doing is right or not. You’ve built a portfolio, and you’re letting it work for you.

Speaking of mental fatigue…

Mental Fatigue And How We Will Overcome it

Remember, you only have a limited amount of decision-making energy, so you don’t want to use it on the things that can be automated. In this scenario, the first thing you need to do is research. You will need to figure out a portfolio that matches your risk tolerance. We have talked a bit about a couple of portfolios in this article.

However, I like TD Ameritrade and their ‘Portfolio Planner.’ It is a simple process of asking you a few questions to gauge your risk tolerance. Once that is defined, you are given a sample portfolio to review, and then you can build out your own.

I’ve said it many times. I am a huge fan of low-cost index funds to invest in. The main reason is that by investing in low-cost index funds, you save yourself 1 – 2% in fees alone. On top of that, you are also outperforming over 95% of mutual funds on the market, making it a win-win. Save money while making more, awesome stuff!

Once you have this setup, you establish your automatic purchase plan. Now you no longer have any more headaches regarding your investments. You can now sit back and invest without the stress and worry of whether or not you’re investing at the right time or not.

Final Thoughts

In this article, we discussed Automated Investment Strategies and their importance. You want to get one set up so that it becomes a habit. You simply set it up and forget about it.

We discussed behavioral finance and its importance in today’s society. The markets are bought and sold on emotions. This is why those who take the emotions out of their investment objectives will significantly improve their level of success.

We talked about the importance of setting up a self-managed investment strategy to overcome your mental fatigue and to chart out a clear path for your investment future. You will refer back to this plan often just to make sure that your goals and risk tolerance hasn’t changed

The last thing we talked about is mental fatigue and how we will overcome it. This will happen from building out an investment strategy. You will do this by running a risk tolerance questionnaire. I really like TD Ameritrade’s accessibility under their Portfolio Planner tool. From here, you will pick the funds that match your risk tolerance, and then you’re all set.

If you have any questions or if you’d like to leave some feedback, please leave a comment below.

Stay Happy!

Renae

Disclaimer: Just My Little Mess does not provide tax, investment, or financial services and advice. The information is presented without considering the investment objectives, risk tolerance, or financial circumstances of any specific investor. It might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.