Automated Investing
90% of professional fund managers lose to index funds over 15 years (S&P Dow Jones Indices, 2024). You won’t beat the market. Automate and forget.
The Setup
- Max employer match first : Free money. Always.
- Open brokerage account : Vanguard, Fidelity, Schwab. Any works.
- Set automatic transfer : Every paycheck, 15%+ goes to investments
- Buy index funds : VTI (total US), VXUS (international), BND (bonds)
- Never look at it : Quarterly max. Annual rebalancing only.
The Allocation
| Age | Stocks | Bonds |
|---|---|---|
| 20s-30s | 90% | 10% |
| 40s | 80% | 20% |
| 50s | 70% | 30% |
| 60s | 60% | 40% |
Simple rule: Bond % ≈ your age. Adjust for risk tolerance.
When The Market Crashes
Do nothing. Seriously.
Missing the 10 best days over 20 years can halve your returns. Those best days often follow the worst days. If you panic-sell, you lock in losses and miss the recovery.
Automation removes emotion. That’s the point.
The Bimodal Approach
This protocol covers the 80-90% of your portfolio that should be automated index investing. For the optional 10-20% opportunistic layer—buying quality businesses at exceptional valuations—see Active vs Passive Investing. Most people should skip the opportunistic layer entirely. The automated approach alone will outperform most active strategies.
Success Metrics
- Savings rate: 15%+ of income invested
- Expense ratio: <0.1% weighted average
- Index allocation: 90%+ of portfolio
- Panic sells: Zero
Objective
Automate index fund investing so that wealth builds without ongoing decisions or emotional interference. The goal is a fully automated pipeline: income → savings → diversified index funds, with no manual intervention required beyond annual rebalancing.
Cadence
- Every paycheck: Automatic transfer to investment accounts (set once)
- Quarterly (max): Glance at portfolio; do not act
- Annually: Rebalance to target allocation; review savings rate
- As needed: Increase savings rate after raises
KPIs
| Indicator | Type | Target | How to measure |
|---|---|---|---|
| Savings rate | Leading | ≥15% of income | Paycheck vs auto-transfer amount |
| Expense ratio | Leading | <0.1% weighted average | Fund prospectus |
| Index allocation | Leading | ≥90% of portfolio | Brokerage dashboard |
| Panic sells | Leading | Zero | Did you sell during a downturn? |
| Portfolio vs benchmark | Lagging | Within 0.5% of total market return | Compare to VTI/VXUS annually |
Failure Modes
| Problem | Fix |
|---|---|
| Panic selling during crashes | Automate everything; delete the app; remember: missing 10 best days halves returns |
| Trying to time the market | Set automatic transfers; invest same amount regardless of market conditions |
| Chasing hot stocks/sectors | Keep 90%+ in index funds; use only 10% for speculation if you must |
| Not increasing savings rate | Auto-increase by 1% after every raise |
| Paying high fees | Switch to Vanguard/Fidelity/Schwab; target <0.1% expense ratio |
| Analysis paralysis on fund selection | VTI + VXUS + BND covers everything; stop researching |
Related
- Concept: Active vs Passive Investing (why index funds win)
- Concept: Compound Interest (why starting early matters)
- Concept: Asset Allocation (the only decision that matters)
- Prerequisite: Build Emergency Fund (build safety net first)
- Complement: Optimize Taxes (tax-advantaged accounts amplify returns)