How DIY investors Can Automate Their Portfolio Management?

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Key takeaways:

  • Learn why you should automate your portfolio management.
  • Find out how Passiv, a portfolio management tool, makes trading and rebalancing your portfolio simple.

The stock market is inherently volatile and no one can predict or control where it’s going to go next. However, if your goal is to grow your wealth through investments in the stock market, there are two important “levers” that you do have control over: how much you pay in fees and how much you invest.

Keeping fees low helps your portfolio grow

On the fees side, lower fees mean you keep more of your money, which stays in your account and drives faster compounding. Rather than paying the high management fees associated with a portfolio manager or mutual funds, many investors opt to manage their own investments and stick to low-cost ETFs instead. This involves choosing what you’ll invest in and what asset allocation is right for you.

The upside to do-it-yourself (DIY) investing is that you have full control and you save on fees. The downside is that it’s up to you to manage your behaviour and emotions, which is critically important during market downturns. Of course, DIY investing also means you’ll need to spend time personally managing your portfolio. It’s up to you to contribute to your account, calculate and execute trades, and rebalance your portfolio. While this can sound complicated and time-consuming, we’ll show you how you can automate these steps and free up your time.

Invest consistently

Before we get into portfolio automation, let’s talk about the other “lever” you have control over when building your portfolio: how much you invest. It’s important to understand that at the start of your investment journey, the majority of your portfolio growth will come from new contributions, while dividends and increasing unit prices play a much smaller role. That’s why it’s vital to focus your efforts on making regular contributions, no matter what the market is doing. While this sounds obvious in theory, it can be hard in practice if you don’t have a plan and a solid system in place. Rather than relying on willpower and your “gut feelings”, aim to automate your finances as much as you can.

If you’re still using spreadsheets to help you allocate cash and rebalance, it’s time to upgrade your portfolio management. In this article, you’ll learn how you can automate your investments.

Why should you automate your portfolio?

When you automate your portfolio, you stop relying on willpower to invest. Come up with an investment plan that works for you, and automate the process to help you stick to your plan. The more you automate your investments, the more you take emotions out of the equation. This gives you a leg up when it comes to market downturns: you already have a plan in place, and you’re more likely to follow it if investing is as frictionless and automated as possible. Not only that, but you’ll also benefit from having more free time to do whatever floats your boat. Below, we’ll take you through how to automate your investing.

Put your employer to work

You work hard for your employer; get them working for you! Employers will generally allow you to split your direct deposit across more than one account (and if you’re not already getting paid by direct deposit, set that up today). Ask your employer for the necessary form, fill it out, then revel in the magic of having money show up in your savings or investment account automatically — no more transferring it over manually!

Pay yourself first

One of the tenets of investing is to pay yourself first. This means that you save or invest part of each paycheck when you get it, rather than waiting and investing whatever amount of money is left in your account by the end of the month. Make paying yourself first easy by automating your contributions with a preauthorized deposit (PAD).If your company offers matching through a group retirement savings plan, aim to contribute enough to get the maximum match amount. If you have investments elsewhere, your brokerage likely offers the ability to automate deposits as well — look into what your brokerage offers and set this up.

Take advantage of DRIP

Another way to automate your investments is to set up DRIP, which stands for dividend reinvestment plan. Put simply, when you receive dividends, you can get them in the form of cash or use that money to purchase more shares of the same asset. Once set up, this is done for you automatically and typically involves no or very low commission fees. Using dividends to build up your portfolio will increase your wealth even faster.

Automate your portfolio management with Passiv

Once you have contributions coming into your account automatically, it’s time to put your money to work.

Passiv is a portfolio management tool that makes investing a breeze by automatically calculating available trades based on your target portfolio and the amount of cash in your account. Even better, executing those trades takes less than 10 seconds with 1-click trading. No more wrangling spreadsheets — instead, you’ll be able to invest from anywhere in seconds.

You can also stop logging into your account constantly to check whether new cash has made it to your account. Instead, whether the cash is from new contributions or dividends, Passiv will notify you by email when it arrives (though if emails aren’t your thing, you can always turn off these notifications).

Passiv can also help you keep your portfolio on track by sending you drift notifications. Simply tell Passiv how much portfolio drift you’re comfortable with, and you’ll be notified when your portfolio drifts from your set target.

Finally, it’s important to rebalance your investment accounts. Ideally, you have an investment plan and asset allocation that’s based on your risk tolerance and investment horizon. When there are big market swings, your portfolio allocation may drift from your desired allocation, potentially exposing you to more risk than you’re comfortable with.

Passiv makes rebalancing your portfolio easy. Every time you allocate new cash, you’ll be bringing your portfolio closer to your target. Depending on the size of your portfolio and the volatility of the market, it’s possible that your regular contributions will be enough to keep your portfolio balanced. If not, you may need to sell some higher-performing assets to buy lower-performing assets. Check in on your investments at least once a year to see whether you need to rebalance. To do a full rebalance with Passiv, simply enable Sell calculations and execute the calculated trades.

If you want even more control over your portfolio, Passiv’s Cash Management tool makes it easy to dollar-cost average your investments or retain a specific amount of cash in your account.

Plus, say goodbye to spreadsheets — you can now keep track of your contributions and dividends with Passiv’s new Reporting tool. You’ll be able to see how much you contributed each month, and when dividends were paid out.

Note: that Passiv links to your brokerage account through an API (application programming interface), which means that only brokerages with open APIs (including Questrade, TDAmeritrade, Interactive Brokers, and Alpaca) are supported.

If you’re ready to automate your investment portfolio, get started with Passiv today in three quick steps. First, create a Passiv account. Then, link your brokerage account. Finally, set up your target portfolio. This is where you tell Passiv what your portfolio allocation is. From there, Passiv allows you to easily allocate money, rebalance your portfolio, and execute trades. You’ll also get those handy cash and drift notifications.

In the end, investing is a means to an end rather than the end itself. Managing your portfolio should be as low-effort as possible because you have better things to do than manually type numbers into a spreadsheet. Automate your investments today with Passiv.

June 24th, 2020