Business, Legal & Accounting Glossary
A program that allows an individual to have a set amount electronically transferred from one account to another at a specified frequency. Examples include stock and mutual fund reinvestment programs, defined contribution plans, mutual fund contribution programs, and automatic withdrawal plans. also called systematic investment plan.
An automated investment plan (AIP) is a type of investment programme that allows participants to make recurring contributions to an investment account to be invested in a pre-determined strategy or portfolio. Funds can be deducted from a person’s paycheck or withdrawn from a personal account.
One of the most effective strategies to save money is to set up an automatic investment plan. A slew of market mechanisms have been established to aid in the implementation of automatic investment plans. Investors can contribute through their company by setting up automatic payroll deductions for investments in employer-sponsored investment accounts. Individuals can also choose to have automatic withdrawals from their own accounts set up.
Employers’ benefit programmes provide a variety of choices for automated investing. Employees can use investing options to support both short-term and long-term investment goals. A 401k is the most prevalent investment vehicle for employer-sponsored automatic investing. Employees have the option of automatically investing a portion of their earnings into an employer-sponsored 401k. As part of their benefits programme, many firms will frequently match a percentage of their employees’ automatic investments.
Companies may also provide additional automated investment alternatives, such as company stock or Z-shares at a mutual fund company. These automatic investing choices encourage loyalty and long-term commitment.
Furthermore, some organisations may collaborate with financial firms through their benefits programme to provide additional choices for automatic investing. These collaborations can help with both short-term investing goals and long-term financial planning. Partnerships with benefit programmes may enable automated investing in customised investment accounts or in accounts administered by a roboadvisor.
Aside from employer-sponsored automatic investing programmes, individuals have a plethora of investment options to select from. Almost every available investment account solution allows investors to set up automatic investments.
Retirement accounts and brokerage accounts are two of the most frequent investment accounts for making automated investments. Some retirement accounts provide incentives for investors to automate their investments. Many investing platforms also include the option of saving automated investments in a money market account, which earns interest until the funds are assigned to other types of securities.
A dividend reinvestment plan is one type of AIP that helps develop assets in a single stock (DRIP). A dividend reinvestment plan (DRIP) is a scheme that allows investors to automatically reinvest cash dividends into more shares or fractional shares of the underlying company on the dividend distribution date. Although the word can refer to any automatic reinvestment arrangement set up through a brokerage or investment institution, it often refers to a formal programme offered directly to existing shareholders by a publicly traded corporation.
Many new solutions for automated investment, known as roboadvisors, are being offered in the rapidly increasing fintech industry. Fintech firms provide micro-investing platforms that enable investors to make tiny, automatic investments. Acorns are one such example. The platform connects to an investor’s bank account to invest spare change (round-ups) from each purchase in an investment portfolio of the investor’s choosing. Other well-known roboadvisor systems include Wealthfront and Betterment.
Robo-advisers typically automate indexed methods with extended time horizons. They often employ passive investment strategies influenced by modern portfolio theory (MPT) to optimise asset allocation weights in order to maximise expected return for a given risk tolerance, and then maintain those portfolio weights in balance.
The fact that roboadvisors are ultra-low-cost and have very low minimums to get started means that even novices can receive optimised portfolios with minimal dollar amounts. In many ways, they are also set-it-and-forget-it, implying that they are truly automatic.
For investors interested in creating automatic investing contributions, there are several strategies and market items available. Investors who use an employer-sponsored benefits programme to make automatic investments often save money on transaction expenses and pay reduced fees.
Many people discover that by “paying themselves first,” they invest more in the long term. Their investments are classified as a separate line item in their normal budget. It also compel a person to pay for investments automatically, preventing them from spending all of their discretionary income.
AIP
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This glossary post was last updated: 7th January, 2022 | 0 Views.