Wanting to invest more this year? Don't know where to start or what to do? Stop trying to time the market and start investing automatically each paycheck. You can set it up through a discount brokerage like Scottrade, or you can do it yourself, but it just takes a slight bit more work.
With Scottrade, you can invest a little each month automatically for the super-cheap rate of just $4 per trade. You can invest in over 7,000 different investments – but you can also just keep it simple and stick to index funds as well!
Automatic Investing is Easy
I recommend Scottrade because it makes automatic investing easy, but anyone can set it up.
To start, you need to open an account at a discount brokerage. If you already have one, great! Once you find your account, you need to locate your account's Routing Number and Account Number, just like you would for a checking account. Every account has one, but it can be difficult to locate.
Once you have located these numbers, you need to go to your work, and change your direct deposit settings to put the amount you would like in these accounts. For me, I have the following set up:
- Savings: $500
- Investments: $100
- Checking: Balance
How Much To Invest
When deciding how much to invest, remember to think about your goals and how many paychecks you get each year.
- Paid Bi-Weekly: 26 Paychecks
- Paid Weekly: 52 Paychecks
- Paid Monthly: 12 Paychecks
Now, think about why you are investing? Is it for your Roth, well then look at how much it will take to max out your retirement savings, and then divide by your number of paychecks.
So, you can invest a maximum of $5,000 per year, and you get paid bi-weekly, you need to invest $192.30 per paycheck (5,000 / 26 = 192.30).
Let It Be Automated
Now that you've decided your amount, and setup your direct deposit, you are almost done. The final step is to setup the automatic investing at your brokerage. This is where you choose what to buy and how often.
I recommend setting up a buy the Wednesday following your deposit. So, if you were paid bi-weekly on the first and third Friday of the month, the actual investment would “buy” on the second and fourth Wednesday of the month. I choose Wednesdays because it avoids paycheck and market holidays for the most part.
Since you are keeping it automated, I suggest you check out my College Student's Guide to Investing, which highlights several index funds for the long term. By focusing on index funds for the long term, you keep expenses minimal while staying right in line with the market. And with automatic investing, you will dollar-cost average into the market over time, which should balance any market losses with market gains.
Finally, make sure that you reinvest your dividends. This is the final automation step, and it will help your money grow over time.
Readers, do you automate your investing? If not, have you ever thought about it?