Guide to Automatic Investment Plans

By AJ Smith · April 12, 2023 · 7 minute read

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Guide to Automatic Investment Plans

An automatic investment plan is pretty much what it sounds like: It’s an account, app, or platform that enables you to make regular investments, automatically.

Automatic investment plans (sometimes called AIPs) can be an excellent way to save and invest steadily over time, because you can set up your plan in advance and then leave it more or less to run on its own — until your needs or goals require a change.

What Is an Automatic Investment Plan?

An automatic investment plan might include a workplace retirement plan like a 401(k), a robo advisor or automated portfolio, a dividend reinvestment plan, as well as other options. What these programs have in common is they give investors the ability to choose an amount they want deposited, the timing of the deposits (e.g. weekly, quarterly), and in many cases which types of investments to fund.

The rise of sophisticated technology and algorithms have helped make automatic investment plans more accessible and secure, as well as more customizable. Investors can direct money to be withdrawn from their paycheck or from a personal account on a biweekly basis, for example, and invested in a retirement portfolio. It’s part of the growing trend around automating your personal finances.

Types of Automatic Investment Plans

While using automatic investment plans for retirement is a common scenario, there are others — including the option to choose more- or less-automated types of investment products or preset portfolios.

Among the different types of automatic investment accounts, or accounts that can be funded automatically:

•   Automatic transfers to a 401(k), 403(b), or personal IRA accounts

•   Automatic transfers to a 529 college savings plan

•   Using a payment app that rounds up certain transaction amounts and deposits the difference into an investment portfolio automatically

•   A dividend-reinvestment plan (DRIP) which helps investors reinvest their cash dividends automatically

Types of Automated Investment Products

There are also different types of funds or automated portfolios (sometimes called robo advisors) which investors can use as part of an automatic investment plan.

•   Target date funds can provide investors with a long-term retirement or college savings portfolio. These funds are typically based on an allocation of different asset classes that adjust automatically to become more conservative over time, until the person needs to withdraw the funds.

•   A robo advisor, or automated portfolio, is a preset portfolio typically of low-cost exchange-traded funds (ETFs). Investors use an online platform to fill out a questionnaire about their preferences, goals, risk tolerance and time horizon. The securities and the allocation in each portfolio are generally fixed, but investors can typically choose from different portfolios that match their risk tolerance and time horizon.

How Does an Automatic Investment Plan Work?

The “automatic” part of an automatic investment plan can refer to the automated deposit of funds, usually on a regular schedule. But it’s not just a way to automate your savings. It can also refer to stock dividends being reinvested automatically, or automated mutual funds (like target-date funds), or robo portfolios, as noted above.

If you consider automated investing 101, the foundation of almost all automatic investment plans is the use of technology to ensure the regular deposit of funds in a portfolio that reflects an investor’s needs and goals. While some people might view these options as “hands-off” or “set it and forget it” — and they can simplify a number of investment choices for investors — using an AIP doesn’t mean your money is on autopilot.

Investors will always need to pay some attention to any kind of investment plan, but that said many AIPs do offer investors some advantages.

Benefits of an Automatic Investment Plan

Most brokerages and workplace plans offer some kind of automated options for investors these days. The reason being that behavioral research has repeatedly shown that investors are prone to make emotional choices under certain circumstances (for example, when the market is volatile).

Automated plans provide basic guardrails that can help keep investors on track, investing steadily over time, rather than reacting impulsively to trends or headlines and trying to time the market.

Dollar Cost Averaging

Another benefit of automated plans is that they are designed so that you invest the same amount at regular intervals. This strategy, known as dollar cost averaging, is important for a couple of reasons:

•   Automating deposits may help build wealth over time, because you’re less likely to spend that money once it’s invested.

•   Dollar cost averaging is the practice of investing consistently over time, whether the market is up or down, which can lower the average cost of your investments.

Time Savings

Another advantage of using an AIP is that it can save you time and energy, especially if researching or managing investments is not your strong suit.

Types of Investments to Automate

These days automatic investment plans are available for a range of goals. As discussed earlier, you can choose to automate your retirement savings, your personal investment portfolio in a taxable account, a 529 plan, stock dividends, and likely other options as well.

These kinds of AIPs can compliment other aspects of financial automation that you may already be using: from budgeting and saving to paying bills.

The financial landscape is evolving rapidly, as anyone who follows crypto or DeFi (decentralized finance) knows. The types of investments you can automate today will no doubt expand tomorrow.

Is Automated Financial Planning Right for You?

In general, automatic investment plans may work for people who want to be on top of their finances, but may not have the time or the inclination for detailed investment management.

In that way, the convenience and lower cost of most automated investment plans and robo platforms can help newer investors (or less involved investors) get started. Investors who aren’t comfortable with relying on technology may not want to invest using automated systems.

That said, automated investing isn’t a strategy for avoiding money management or financial planning completely. Most investors’ portfolios and financial plans include details or circumstances that require human insight or input. Estate planning, owning a small business, or prioritizing among multiple goals, for example, can get complicated quickly.

Although it can be simpler to automate some parts of the investing or financial planning process, a human advisor can help ensure that you aren’t missing anything. Also, investors who use automated portfolios have less control over their investments.

Fortunately, automation here can also work in your favor: You can set alerts to remind you when certain withdrawals are being made.

Starting an Automatic Investment Plan

Starting an automatic investment plan is pretty straightforward. You first want to identify the primary goal for using an automated platform.

•   Do you want to save for retirement at work, or is this a personal retirement account?

•   Do you want an automated investment portfolio that’s preset, like a robo advisor? Or do you want to set up your own portfolio?

•   Do you own dividend stocks, and does it make sense to set up a dividend reinvestment plan?

Then, as you explore a few different options, you want to consider the following:

•   Is it a reputable platform, account, or app? Hint: Most online brokerages and financial firms offer a few automated options, so it may be possible to stay with your current provider.

•   Is the platform easy to use?

•   What are the fees?

Using an Automatic Investing Plan

Using an AIP is generally self-explanatory because generally these programs were created for investors who want a streamlined experience. Once your account is open, you typically set up a direct deposit of funds, and select the investments you want in your plan.

If you’re working with a financial advisor, they can help insure that the platform you choose will support the rest of your financial plan. If you’re flying solo, you can begin to do research into how your automatic investment plan works together with other goals.

Automated Investing With SoFi

One of the best things about automated financial planning is that you can be as hands-off (or hands-on) as you choose. Using an automatic investment plan these days provides a number of options, including active investing, retirement, and robo advisor options.

With SoFi’s automated investing platform, we help you explore your risk tolerance, and from there you can select a portfolio that matches your needs. Whether you’re saving for retirement, a down payment, or just investing for later, you can make a plan to tackle multiple goals.

See why SoFi is this year’s top-ranked robo advisor.


How do you automate an investment strategy?

You can find an automatic investment plan (AIP) that will match your goals and help you set up or fund a portfolio. That said, you can’t automate your entire investment strategy: Ideally, an AIP would be a tactical piece that fits into your overall strategy.

How often should I auto-invest?

You want to keep up a steady cadence of deposits to make progress toward your goals, and to reap the benefits of dollar cost averaging. You might consider auto investing once a month to start and see how it goes.

What are the benefits of starting an automatic investment plan?

There are a number of advantages to using an automatic investment plan, including the fact that it can help keep your investment plan on track, even if you’re tempted to make changes when markets fluctuate. In addition, an AIP can save time and may help lessen the impact of market volatility.

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