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How to Boost Your Savings with Automated Investing
How to Boost Your Savings with Automated Investing
Automated Investing: An Overview
Automated investing, often referred to as robo-advising, is a service provided by various investment firms and financial technology (fintech) companies. These platforms use sophisticated algorithms to manage and grow your investment portfolio for you, based on your personal risk tolerance and financial goals.
This approach can not only save you time, but it has the potential to boost your savings. By taking advantage of the technology behind automated investing, you can capitalize on a range of benefits such as low-cost investment options, increased diversification, and automatic rebalancing of your portfolio.
Benefits of Automated Investing for Boosting Your Savings
1. Low-cost Investment Options
One of the most significant benefits of using an automated investment platform is the low fees associated with these tools. Traditional financial advisors often charge fees calculated as a percentage of your assets under management (AUM), sometimes as high as 1% to 2%. Over time, these fees can cut into your portfolio's growth.
In contrast, robo-advisors typically offer lower management fees, ranging from 0.25% to 0.50% of your AUM. These savings can have a considerable impact on the overall growth of your investment portfolio.
Diversification is a cornerstone of sound investing, as it reduces the risk associated with reliance on a single asset or industry sector. Automated investing solutions allow investors to achieve greater diversification with ease by offering a broader range of ready-made portfolios consisting of various asset classes.
From stocks and bonds to commodities and real estate, these algorithms allocate your investments among different securities to provide a balanced and diversified portfolio tailored to your risk tolerance and financial objectives.
3. Automatic Portfolio Rebalancing
Regularly reviewing and adjusting your investments is essential to match your original asset allocation and maintain your desired level of risk over time. This process, known as rebalancing, can be time-consuming and may require a degree of market knowledge that many individual investors lack.
With automated investing, portfolio rebalancing is conducted automatically. This ensures that your portfolio stays aligned with your objectives by periodically buying and selling assets to maintain the initially established target allocation. This feature not only saves you time but can help protect your portfolio from market volatility and improve your returns.
4. Tax-loss Harvesting
Another advantage that automated investing brings to the table is tax-loss harvesting, a strategy that offsets potential capital gains taxes by selling underperforming investments and using the realized losses. This process can result in significant tax savings and ultimately higher investment returns.
Certain robo-advisors offer tax-loss harvesting services as part of their platform, automatically facilitating the sale of underperforming assets to minimize your tax liability, and increasing your overall portfolio performance.
How to Incorporate Automated Investing into Your Savings Strategy
Step 1. Determine Your Financial Goals and Risk Tolerance
The first step in using automated investing to boost your savings is to define your financial goals and risk tolerance. Consider factors such as your investment horizon, expected rate of return, and comfort with market fluctuations. These insights will help you select the right platform and investment plan to suit your needs.
Step 2. Research Automated Investing Platforms
With numerous providers offering automated investing services, it's crucial to research and compare platforms to find the best fit for your financial objectives. Consider factors such as:
Firms' credibility and industry reputation
Types of securities and asset classes offered
Management fees and other costs
Access to human financial advisors
Integration with your existing financial accounts
Step 3. Choose an Investment Strategy
Based on your financial goals and risk tolerance, select an investment strategy that aligns with your needs among the options provided by your chosen platform. Strategies may vary in terms of asset allocation, forecasted returns, and degree of risk.
Step 4. Set Up Automatic Contributions
To maximize the benefits of automated investing and boost your savings, set up regular contributions to your investment account. This way, you establish a routine savings habit and take advantage of dollar-cost averaging, which mitigates the risk of investing a large amount of money at an unfavorable time in the market.
Step 5. Monitor and Adjust as Needed
While robo-advisors handle most aspects of portfolio management, it's crucial to review your investments periodically and make adjustments when necessary. Life events or changes in financial goals may require alterations to your risk tolerance or investment horizon. Regularly reviewing your account ensures it remains aligned with your objectives.
Automated investing is a powerful tool that can help you boost your savings and stay on track to achieve your financial goals. By combining low-cost investment options, diversified portfolios, automatic rebalancing, and tax-loss harvesting, robo-advisors provide a convenient and accessible way to grow your wealth.
Taking the time to select the right platform and investment strategy, contribute consistently, and monitor your account periodically will set you on the path to a more secure financial future.
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