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Having a healthy investment portfolio is an important part of a successful retirement plan.

However, managing your own portfolio is time consuming. It's hard to monitor and balance your investments while balancing the other responsibilities in your life.

That's why it's so beneficial to automate your investment portfolio. In this article, we'll explore the many benefits of automating your portfolio and discuss several techniques that you can use for wealth automation today.

Benefit #1: Spend Less Time Managing Your Investments

As I alluded to in the introduction of this article, it can be extremely time consuming to properly manage an investment portfolio.

Self-directed investing requires you to have some knowledge of the following fields:

  • Capital markets
  • Economics
  • Diversification
  • Corporate finance

Learning and implementing these skills takes time. And, as they say, time is money!

Fortunately, it doesn't have to be very complex. You'll see later in this article that there are a number of tools and strategies that you can use to automate the management of your long-term retirement portfolio.

Benefit #2: Avoid Common Investment Mistakes

Your investment portfolio is like a bar of soap. The more you touch it, the smaller it can become.

That's because it can be very emotionally taxing to manage an investment portfolio. The ups-and-downs of the capital markets often cause investors to overreact and make poor decisions.

That's where automating your portfolio comes in handy. If you're relying on a rules-based strategy to invest your money, your emotions are taken out of the equation. You will make the same portfolio decisions regardless of how much volatility is being experienced in the broader capital markets.

For the remainder of this article, we will discuss a few tips and techniques that you can use to automate your portfolio today.

Technique #1: Use a Financial Planner

Perhaps the original technique used by investors to automate their portfolio management was the use of a financial planner. Although this is probably closer to 'outsourcing' than it is to 'automating', it is still a very common choice by investors so it is worth discussing in some detail.

Depending on the nature of your relationship with your financial planner, there are a number of responsibilities that they might assume, including:

  • Managing your investment portfolio (which is the primary focus of this article)
  • Purchasing insurance on your behalf
  • Creating a will and estate plan
  • Filing your tax returns

For the purpose of this article, let's focus specifically on the subset of financial planners that focus on managing your investment portfolios.

The idea of having a human manage your investments is appealing on paper. Knowing that a professionally-trained individual is overseeing your portfolio is a large contributor to peace of mind for many investors.

However, it's not all sunshine and roses. Working with a financial planner also has drawbacks. We'll discuss those next.

First, many "financial planners" are not legally required to act with your best interests in mind. Instead, they fall victim to a number of perverse incentives that exist within the financial industry, including higher commissions on certain products that might not be suitable to you.

Secondly, financial advisors are human. This means they can sometimes fall victim to the emotional investment mistakes that we mentioned earlier in this article - even though the actual investment decisions are being made at arms' length from the ultimate owner of the invested assets.

Lastly - and perhaps most importantly - financial planners are quite expensive. Many planners charge around 1% of your assets under management, which amounts to $1000 per year on a $100,000 investment portfolio. Those fees will only rise as your portfolio grows in size over time.

In summary, a financial planner lies at one end of the expense/service spectrum - you will get a high degree of service from a financial planner, but it is also the single most expensive option available if you're looking to delegate the management of your investment portfolio.

Technique #2: Build Your Own Rules-Based Investing Strategy

Perhaps the most straightforward way of automating your investment portfolio is to create a rules-based investment strategy and stick to it rigorously.

If you've never done anything like this before, don't worry. We'll work through a few examples of automated, rules-based investing strategies in the next several sections.

Example #1: The S&P 500 Index ETF (SPY)

In this example, let's consider the situation of an investor who wants to be entirely invested in the S&P 500 Index ETF.

This strategy is very simple to manage. You would simply set up regular contributions to your investment account and then purchase additional units of SPY whenever you had a large enough cash balance.

Moreover, since most brokers allow you to buy ETFs for no fee, this investment strategy is extremely cost effective!

Example #2: 50% Weighting to the SPY ETF and a 50% Weighting to the QQQ ETF

Two of the most popular stock market indices in the United States are the S&P 500 Index and the NASDAQ 100 Index.

Because of this, let's now consider the situation of an investment who wants to invest 50% of their portfolio in each of the following ETFs:

  • The S&P 500 Index ETF (SPY)
  • The NASDAQ 100 ETF (QQQ)

This rules-based investing strategy is more complicated than our first example, but it also provides more diversification to the investors that participate in it.

The additional layer of complexity comes from having to rebalance between the different ETFs. If SPY increases in price and QQQ decreases in price, then you'll need to sell SPY and buy QQQ in order for your portfolio to stay balanced.

Add regular contributions into the mix, and this becomes even more complicated!

Example #3: A Quantitative Value Investing Strategy

The last investment strategy that we'll consider is much more complex. Let's say that you want to buy individual stocks with the following criteria:

  • Price-to-earnings ratios below 20
  • Price-to-sales ratios below 5
  • Price-to-book ratios below 2

Once you've identified stocks that meet these criteria, you want to build a portfolio that is equal-weight across all of the stocks.

If it isn't clear already, managing this type of strategy by hand is extremely complicated. Here are just a few things that you'd need to consider to build this:

  • How to handle stocks that are already in your portfolio, but still being returned by your stock screener (do you buy them twice?)
  • How to minimize transaction costs (remember, since these are stocks and not ETFs, some brokers will charge you for each transaction)
  • What you'll do if the stock screen returns a very small number of stocks (the strategy would suggest owning a lot of each stock, but that's a very risky approach)

For obvious reasons, a complicated investment strategy like the quantitative value philosophy outlined above is fairly hard to implement.

Because of this, investors who want this type of exposure are better off either (1) capturing the exposure through an ETF or other investment vehicle or (2) relying on some outside tool to manage your portfolio.

We'll explore our favorite wealth automation platform in the next section of this article.

Technique #3: Use Passiv

We built Passiv to make it easy to manage a passive investment portfolio.

Passiv is a web application that connects directly to your brokerage account and allows you group your accounts into Portfolio Groups and assign target portfolios to those accounts.

Once your target portfolios are assigned, Passiv continuously monitors the accuracy of your portfolio groups to make sure your investments are on track. When your portfolio drifts (meaning your actual portfolio is far from your target portfolio), Passiv notifies you and recommends trades to put you back on track.

Passiv also offers other, more advanced features. A few examples include multi-account portfolios, advanced currency handling, the ability to connect multiple brokerage logins, and even one-click portfolio rebalancing.

If you're interested in trying Passiv out, visit our website and create an account today.

Final Thoughts

Managing your own investment portfolio can seem like a daunting task. There's a ton of different concepts that you need to understand. Moreover, self-directed investing can be quite time-consuming.

Automating your investment portfolio helps solve all of these problems. By working with a financial planner, building your own rules-based investment strategy, or using a tool like Passiv, you can abstract away most of the complexity associated with investing. You'll also be less likely to commit emotionally-driven investment mistakes, which will improve your long-term portfolio outcomes.