Are you looking for an easy way to save money without going through the whole portfolio management process? If so, then automatic investments could be just the ticket.
While many investment accounts now offer an automated investing option, today, we’re going to focus on Vanguard automatic investments. We’ll walk you through how it works, its pros and cons, and how it compares to other automatic investment options.
The Pros and Cons of Vanguard Automatic Investing
Vanguard automatic investing offers plenty of perks for the right investor. But before we get into how to automate your Vanguard account, let’s get you up to speed on what you need to know to decide if it’s the right option.
Limited Investment Decisions
This one may be a pro or con, depending on what type of assets you want to invest in. Vanguard’s automatic investing capabilities are only available for Vanguard mutual funds and don’t work with individual stocks or exchange-traded funds (ETFs).
The Vanguard has plenty of great low-cost options if you are interested in mutual fund investing. The Vanguard Group is actually known for pioneering mutual funds and currently offers the largest selection of mutual funds on the planet.
If you’re looking for a low-risk, long-term investment strategy with plenty of diversification, then mutual funds are a solid choice. They’re a particularly popular choice when saving for retirement through IRA contributions.
However, investors who want to invest in stocks or ETFs will likely find Vanguard automatic investing pretty limited. If this is the case, check out the section below on Vanguard automatic investing alternatives; if not, read on!
The Benefits of Automatic Contributions
Auto investments take the time and stress out of staying on top of your savings by allowing you to set up recurring automatic investments straight from your bank account. Whether you want to max out your annual IRA contribution limit or stash away cash in your brokerage account, setting up auto investments is an easy way to stay on track.
Dollar Cost Averaging
Whether you set up automatic investments for your traditional IRA, Roth IRA, or personal brokerage accounts, you’ll enjoy the perks of a little dollar cost averaging.
Dollar-cost averaging takes the stress out of market fluctuations by ensuring you invest the same amount of money in an asset regularly, regardless of its cost at the time.
For illustrative purposes, imagine that you decide to invest $200 in a particular mutual fund on a specific date each month. One month, the fund you select may cost $25, while the next, the price may be up to $35.
The idea is that by investing the same dollar amount in the fund on the same day each month, the total amount you pay for each share should average over time. Dollar-cost averaging also takes the stress out of timing your investments to the fickle nature of the market.
How To Set Up Vanguard Automatic Investments
Ready to put investing in mutual funds on autopilot? The good news is that getting started is incredibly easy, with one possible snag that many new investors don’t realize until they are halfway into the process.
As you’ll discover in step 5, you must either be invested in it or meet the minimum investment requirements to access automatic investment options for a certain fund. For this reason, you may want to take the time to research funds before you access the automatic investment feature.
Connecting your bank to your Vanguard account will also make things much easier. Once you’re ready to start, follow this guide to set up your first auto investment plan.
1. Sign Up for a Vanguard Account
If you’re a Vanguard customer, you can skip this step and log in to your existing account. But this will be your first step if you’ve not set up any existing Vanguard accounts.
Head over to the Vanguard account sign-up page and select the type of account you’re interested in. For automatic investment purposes, you’ll either want to select a joint or individual brokerage account or an IRA if you’re interested in saving for retirement.
2. Go to Profile and Account Settings
Once you log into your online account, select “Profile and Account Settings” from the main menu at the top of your screen. A menu titled “Banking and Money Movement” will appear on your screen, under which you’ll click the selection titled “Automatic Investment.”
See Related: Best Vanguard ESG Funds
3. Select Your Account
You’ll be directed to a page called “Set up Automatic Investments,” where you’ll be asked to select the account you want to invest in. If you have multiple accounts, the biggest question here is whether you want to make automatic investments into your retirement or personal accounts.
4. Select Your Funding Method and Frequency
On the next screen, you’ll select the account you want to use to fund your investments. For example, you might choose from an external checking, savings and loan, or credit union account.
Now you’ll choose when your investments will begin and how often you want them to recur. When it comes to frequency, you can choose from one of five options: weekly, bi-weekly, twice a month, monthly, or yearly.
You can also set an end date for your auto investment plan. For example, if you want to test drive automatic investments, you might tell Vanguard to keep your plan active for a few months or a year.
There’s also an option to keep the plan active until you manually tell it to stop, which you can do at any time. If your investments will go into a retirement account, just be mindful of your annual contribution limit.
You can also choose to maximize your annual IRA contributions. If the contribution limits happen to change, Vanguard will automatically adjust your investments accordingly after giving you a heads-up in November before the increase goes into effect.
See Related: How to Use eTrade Automatic Investing [Step-by-Step Guide]
5. Choose the Amount You Want to Invest
This step actually takes place on the same page as the last one, but we figured it deserved a section of its own to keep things concise. Once you’ve decided on how often you want to invest, you’ll choose the dollar amount you’d like to allocate for each auto investment.
You’ll also choose which mutual funds you want to invest in. One additional quirk of Vanguard’s automatic investments is that you need to either already own shares or meet the minimum requirements of any funds you want to select as an option.
If you’re a newer investor, you may want to research various fund options, whether through a quick Google search or other resources. Once you can access your options, it’s time to choose how much cash you’d like to invest in each.
For example, imagine you have already invested in four different Vanguard mutual funds. You’ll have three options when you set up a new automatic investment.
- Choose a specific dollar amount to invest in the funds of your choice
- Invest a different percentage of your total automatic transaction into various funds
- Split the money from each bank account transfer equally among your chosen funds.
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6. Review and Click Submit
This one’s pretty straightforward! Before your choices are finalized on the website, you’ll be taken to a review page where you can make sure everything looks legit.
Taking a moment to make sure you’ve selected the right bank account, the amount of money you want to invest, and the correct account portfolio can save you unnecessary account maintenance later on. Once you’re sure everything looks good, click submit, and Vanguard will start helping you invest your money automatically.
Vanguard Automatic Investing Alternatives
Whether or not Vanguard’s auto investing feature is right for you may largely be a matter of whether or not you are interested in their mutual funds. If you want to expand your portfolio to include ETFs or other investment options, check out these top auto-investing options.
Acorns
One of the original auto-investing apps, Acorns connects to your bank account and offers several ways to invest in low-cost EFT index funds.
While Acorns does charge a subscription fee, it allows you to round up and invest the spare change from each purchase you make, set up recurring automatic investments, or both. You can then even automatically invest in Vanguard ETFs.
See Related: Acorns Sustainable Portfolio Review
WeBull Recurring Investments
WeBull’s recurring investment option offers much broader access to the market by allowing users to invest in stocks and ETFs on their schedule. Simply select a stock or ETF index fund, choose how much you want to invest regularly, and Webull will do the rest.
SoFi Automated Investing
SoFi also has a great robo-advisor option to design a portfolio of ETFs based on your risk tolerance, goals, and time horizon. Simply set up recurring investments, and SoFi will take care of everything, even auto rebalancing.
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