Advice on Automated Investing?

[uneven_cyclist]

Hey All,

I am seeking to automate my contribution/investment process a bit more and seeking some advice from anyone else who might have taken similar actions or who might have recommendations that I haven't thought of. 

My 403(b) investing is hands-off because I set a contribution rate/asset allocation with my employer, and then it's hands-off...my employer automatically stops contributing each year after hitting the maximum amt. ($20500 this year).

I learned after watching the Netflix Documentary that MMM wrote about in his most recent blog post (Get Smart With Money) that it is possible with most employers to have them split up your direct deposit into as many as five different streams.

I also know that there are now several brokerages/robo advisors out there (Betterment, M1 Finance, etc) that offer a fairly hands-off/automated approach, so that when you contribute money, they will invest it automatically according to your asset allocation.

With this in mind --
*Would it be a good idea to ask my employer to take a slice of my direct deposit (assuming that they can) and send it to an account with a robo advisor (Betterment/M1 Finance etc) and then just have that be an automated process?
*Any ideas/suggestions for how to automate my $6k/year IRA contribution?  Do any of these services offer functionality as far as that goes -- like a feature where I could say "contribute to the IRA until it maxes out, and then direct future contributions to taxable acct. until the next year starts" and on and on...

Any other ideas, systems, services, tips, tricks etc. to consider as I work on this?

Thanks all!

[Scandium]

I'm confused, if your employer currently automate your investment, why would you need to send it somewhere else... to automate it? (and I don't think you can?)

For your IRA, just divide the amount by how many times you'll contribute, i. e 12. And set that up automatically. Pretty sure every major broker let's you do this, including specifying percentage to different funds. The only issue I've seen is using EFTs, since you have to buy a fixed number of shares, and you don't know the price. I don't know if there is a service that allows "transfer enough cash to buy X shares"

[ATtiny85]

I keep things simple. I have an account set up at Vanguard (Fidelity or Schwab would be just as good). Then from Vanguard I have automated investments set up, pulled from my checking account. Right now that is just into a taxable account, all VTSAX. As Scandium said, just distribute your IRA over the year if you really want pure hands-off. I did that for a long time.

And of course, the 401k is automatic.

I have been doing this since 1994.

[ChickenStash]

Regarding direct deposits to auto-invest, the usefulness greatly depends on how well both your employer and your investment account manager handle it. On the employer side, I've had some employers that allowed DD to be easily setup/managed through a web portal on the HR system while others (like my current employer) require an obnoxious amount of paperwork to setup or make changes. I use Vanguard and find their auto-investments from DD to be a little kludgy but it does work well once everything is going.

I've been switching things over to using auto-withdrawals from my bank account, instead. It just works out to be easier to control and manage when I need to make the occasional change when contribution limits change or if I, heaven forbid, actually get a raise. I can set the withdrawal schedule to match my pay schedule so I don't have to worry about money magically disappearing for other things so it's equivalent to DD in that regard.

[uneven_cyclist]

Thanks all... @Scandium, clarifying -- I am content with the level of automation that my employer provides with my 403(b) but am seeking to achieve a similar level of automation (or as close as possible) with my taxable/IRA accounts.  Unfortunately, my employer does not manage those accounts, I manage them on my own through a separate brokerage acct.

Thanks all for for the advice on scheduling transfers from bank accts. to brokerage accts. that is helpful.

I took a bit of time this afternoon to call M1 Finance and Betterment to inquire about their services and was able to learn a bit more:
*Neither service actually offers direct deposit, and so the direct deposit system I was envisioning of sending a slice/percentage of my paycheck directly to one of these services would not be feasible, at least for now.
*They both offer some useful functionality with regard to automating IRA investing: much like a full-featured brokerage, you can set frequency for bank transfers to an IRA and then they will automatically purchase shares to match whatever allocation you have established.
*Unlike most traditional brokerages, they will automatically purchase fractional shares of ETFs the moment your money is transferred in and they will automatically keep your portfolio balanced according to whatever allocation you determine at the outset -- e.g. 80% S&P 500 ETF, 20% Bond ETF -- and maintain that balance.
*They will automatically start contributing to the following year once your IRA reaches the contribution limit ($6000) for a given year.
*If you max out an IRA they will stop drawing $$ from your account until the next year becomes available and then they'll begin contributing to that year with subsequent transfers.
*You can set up a second automatic transfer to fund a taxable account.

So...it seems as though you can do much of this with Vanguard or eTrade or Ally or Fidelity or other brokerages, but as I understand it, the main difference lies in the automated purchasing of shares and in the fact that they purchase fractional shares of ETFs and that they automatically keep things balanced. 

I'll keep looking into the differences but I may test one of them out to explore the functionality...I may also call my current brokerage to see what they say about their options before moving ahead. 

Thanks all for your time!

[uneven_cyclist]

Something I forgot to mention in my final reply -- if you wanted to use the direct deposit strategy outlined in Get Smart With Money (Netflix Documentary) then you could still do it, but you would just ask HR/Payroll to send a percentage of your direct deposit to a separate bank account and then have your brokerage use that account for your automated transfers, rather than having the brokerage draw from the same checking or savings acct that everything else comes from (credit cards, bills, daily spending, etc).

That may be an unnecessary step for some or most, although it could also be a way to establish/visualize your savings rate a bit more easily, or to establish systems to protect against overdrafts...all depending on your bank, payroll dept., spending habits, reporting systems, and so on etc. etc. etc.  I don't know if I would actually do this myself, but wanted to mention it.

Thanks again all for your time, and I think I have it figured out now.

[uneven_cyclist]

I realize I'm mostly talking to myself at this point, but just in case someone searches for this later on, I wanted to share this video that I found on M1 Finance's Smart Transfers functionality https://www.youtube.com/watch?v=W8ulML8RW1Q&t=4s&ab_channel=M1

Basically what you can do is open a checking account with M1, and then set up a transfer rule so that whenever the balance goes above a certain amt (e.g. $1) then money will be swept into an account of your choosing (e.g. IRA)...you can set conditions, like "only transfer until the IRA hits $6000, and then after that, begin transferring to my taxable acct" and so on. 

There are more options as well, but one simple possibility = you could aim a percentage of your direct deposit at an M1 spend account, and then if you set up Smart Transfer Rules so that M1 will automatically max out your IRA and then begin investing in your taxable acct. each year, then you could potentially save some time.

[MustacheAndaHalf]

Many years ago, I did automatic buying of Vanguard mutual funds at Vanguard.  I assume the same is true of Fidelity and Schwab.  You do not need a robo-advisor in order to make automatic purchases.

Your current employer can't split a paycheck into two accounts, like for two spouses?  That seems odd, but maybe you can contact your broker about automatic withdrawal.  Or even try automatic sending of money from your bank.

Then you just need to figure out how much will go into your brokerage each month, and setup automatic purchases to use that amount in purchases (hopefully across diverse mutual funds).

[Scandium]

I realize I'm mostly talking to myself at this point, but just in case someone searches for this later on, I wanted to share this video that I found on M1 Finance's Smart Transfers functionality https://www.youtube.com/watch?v=W8ulML8RW1Q&t=4s&ab_channel=M1

Basically what you can do is open a checking account with M1, and then set up a transfer rule so that whenever the balance goes above a certain amt (e.g. $1) then money will be swept into an account of your choosing (e.g. IRA)...you can set conditions, like "only transfer until the IRA hits $6000, and then after that, begin transferring to my taxable acct" and so on. 

There are more options as well, but one simple possibility = you could aim a percentage of your direct deposit at an M1 spend account, and then if you set up Smart Transfer Rules so that M1 will automatically max out your IRA and then begin investing in your taxable acct. each year, then you could potentially save some time.

ok, I see, understand better what your goals are now. I guess that's neat, but at least in my opinion seems a bit unnecessarily "complicated to simplify".. if that makes sense.

As people have mentioned Vanguard, and others, let you set up a recurring purchases, so for example I just set it to buy 50/50 of VTSAX/VTIAX for $x the same day I get a paycheck, every two weeks. I get my pay and the money goes to vanguard within the same day, so effectively I don't see the money. I think that works as well as having it sent to another account. I only set this up once, and don't do anything with it for months, usually only to change the amount depending on my projected cash flow needs.

Now, it won't make sure you don't go over the $6k limit, but for that you could just send $230.76 to the IRA account every two weeks (or whatever $6000 divided by your pay frequency is). Or of course it's better if you can just dump 6k into the IRA in january, then send to taxable the rest of the year.

Not familiar with M1, but it seems like some robo-advisor startup, ruh-roh.. Not something I'd trust with my cash immediately, I'd want to do research. And there's an annual fee (ew!)

[Telecaster]

I realize I'm mostly talking to myself at this point, but just in case someone searches for this later on, I wanted to share this video that I found on M1 Finance's Smart Transfers functionality https://www.youtube.com/watch?v=W8ulML8RW1Q&t=4s&ab_channel=M1

I'm with @Scandium.  Seem like a lot of karate for not much benefit.

FWIW, we've had a lot of threads on roboinvestors.  They only make sense with small portfolios.  At least, that was the latest analysis that I saw.   

[CBECH22]

Highly suggest M1.  I have been using for a little over a year.  I set my wife up with it as well.  Super simple to setup a "pie" and setup a recurring transfer.  I see you mentioned above about signing up for an M1 checking account and doing smart transfers. 

That is one way to go about it, but not necessary.  You can setup M1 to pull straight from your bank account and then depending at what time that happens, it will purchase pieces of your pie automatically during its next purchase window (Morning or Afternoon [afternoon is only available if you are a premium member]).  The formula will determine how much of each piece or pie it needs to buy based off the percentages that you set.  Once you set up a pie, you can completely forget it if you want.  If you want to modify the pie, you can do that as well and your next purchase will go off of that. 

Like I mentioned, I set my wife up with this.  She knows nothing about investing, but money automatically comes out each payday and she buys ETF's.  It's a super simple way to invest in the market with as little or as much effort that you want.