Psychology of Investing: 5. Investing on Autopilot

About the psychology of investing series

I’m writing this exciting series of articles to add a new twist on the fundamentals of investing, which you may have read about in my core ‘How-To’ guides:

These guides sit at the centre of the free investing courses I shared for free on Financial Expert. I have continued to create this investing psychology guide because achieving technical competence isn’t enough.

A seasoned investor doesn’t just know how to place money in an asset, but can monitor, manage and maintain an investment strategy in a variety of challenging circumstances.

The objective of this psychology series is to arm you with tips and tricks to fight back against doubt, overconfidence or fear. If left unchecked, these weaknesses can lead to:

  • Incurring excessive fees
  • Buying high and selling low
  • Failing to be ‘invested’ in the market at all times

These problems plague many retail investors and result in disappointing returns.

If you could see the stats on viewing figures for my articles:

You would see the extent to which investors are always looking for reassurance in the face of psychological challenges.

I’m here to say that unfortunately, you cannot invest on the basis of advice you find in articles you stumble across AND maintain a clear investment strategy.

Instead, you should understand the principles of investing and the mental challenges that investors face. Take all this information and design a portfolio and investment strategy for the future.

If you give yourself a clear rulebook to follow, which anticipates any doubts you might experience along the way, you will not feel the need to ‘consult’ with journalists each time you make a potentially life-altering financial decision.

The truth is, financial journalists, working for large organizations can change their tune with alarming frequency. One write-up could be deeply pessimistic one day, but then cautiously optimistic the next. Their output often guided by a brief handed down to them. As a result, online media and even individual authors are rarely consistent.

Please use this website to educate yourself upfront, and after balancing everything you’ve learned, create a future proof strategy that you can stick to. I hope you enjoy this week’s guide.

As always, for those seeking more investing psychology info, visit our list of the best investing psychology books.

Investing on Autopilot

So far in this series, we’ve covered different threats that can derail your investment strategy:

  • Over-confidence
  • The impact of losses
  • Treating investing like a hobby

This article looks at one way to keep your investing on-track in spite of all three: investing on autopilot.

Automation is the future

What do I mean by investing on autopilot?

  1. Choose an online stockbroker
  2. Set up a recurring monthly payment from your bank account which will transfer funds into the stockbroker account each month after payday.
  3. Take advantage of the regular investment service of your stockbroker to place the same share, bond or fund trades every month, in accordance with your chosen asset allocation.

Then sit back and relax, as your basic investment portfolio is automatically built over time.

The benefits of autopilot

No willpower required. By taking money from your bank account without you needing to act, you can be sure that your investing activities will continue even if you take your eye off the ball.

Use less mental energy. Because you set the investing rules upfront, you remove the monthly chore of ‘deciding’ how to invest each deposit.

Remove fear from the equation. An automated system will continue to invest during severe market turbulence. Investing during such times is a very difficult thing to do, because the sheer gloom in the media will discourage you from putting money into the market. However, buying at low valuations will bring a long term benefit to your portfolio.

Overcome overtrading. Because your system works without you, you won’t be tempted to make spontaneous investments on the basis of news. Overtrading won’t increase your returns – only your fees. Therefore keeping your investment banker instincts out of the action will remove some risk, volatility and fees from your portfolio.

Other ways to invest automatically

Following the steps above will see you automate a traditional stockbroker investing platform. But you can take automation further:

Pension schemes: The original automated investment

Maximize the benefit you get from any employer-matched pension scheme contributions. Pensions are really the original form of automated investment vehicle. They work well as long as their fees are fair and they’re they’re investing your money in the right passive funds. Pensions can be used to avoid tax when investing. However, these perks come with restrictions on withdrawals which make them only appropriate for retirement saving.

Roboadvisers: The new kid on the block

You could also consider using a ‘robo-adviser’. Robo-advisers are the new generation of stockbrokers which offer a completely hands-off service. You answer questions about your risk appetite and the service begins managing your money for you (for a fee).

Keep reading: The full Psychology of Investing Series:

  1. How to Accept Losses
  2. The Income Mindset
  3. The Dangers of Exuberance
  4. Keeping your Hobby in its Box
  5. Auto-Pilot Investments

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