How to Invest on Autopilot

Sharing is caring!

How to invest on autopilot isn’t just trusting that your company has your best interests at heart.

If you are like most people working for a large company you are just mindlessly putting money into an investment account.

Do you know what you are investing in?

Do you know if you are making money in it over the long run?

Do you know if you are paying out most of your gains in fees?

Here is what I know about most Americans. If they invest (and you really should) they don’t know what to invest in. This article will show you how to invest your money so that in the future you won’t be living paycheck to paycheck or even worse, dependent on social security to survive.

This post may contain affiliate links which means that I may receive compensation at no extra cost to you if you make a purchase from a link found on my site. Please review my privacy policy for further details.

These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Investing 101

What is investing? Investing is simply paying your future self by depriving your present self of some of the money you are earning today.

What can you invest in? This is the problem. You can invest in stocks (own a part of a company). Bonds (the debt of a company or government). Real estate (in terms of rental property or funding someone to run rental property). Commodities (things like copper or corn). Many other things can also be invested in and nothing is 100% safe.

But the safer the investment the lower the percentage it will pay you. Bonds pay lower than stocks can. And EVERYTHING can lose value!

If you don’t invest your money then it WILL lose value due to inflation.

So what should you invest in? Well, let’s look at your options.

Get a Handle on Your Finances

Knowing what your net worth is and how your actions impact your financial future is probably the MOST important thing you can do for you and your family.

Find out how to do it quickly and put it on autopilot. Money doesn’t have to be hard.

Click here to read How to know your net worth and why it matters.

The Truth About Mutual Funds

Mutual funds are a collection of stocks / bonds and potentially real estate and commodities and cash. They are run by other people that are trying to “beat the market.” And remember this statement: Beat the Market. It is very important.

On average only 35% of Mutual Funds beat the returns of investing in the S&P 500 (basically the biggest 500 companies in the United States that have publicly traded stock). And over a period of 20 years, only 6% of Mutual Fund managers are able to beat the market. And most of those require lots of money in order to have those managers manage your investments (typically millions of dollars).

So while many will tell you that mutual funds are safe, 94% of them will do worse than if you just invested in the S&P 500!

But what about target date funds?

The Truth About Target Date Funds

A target date fund is most likely what your 401k money is invested in. This is typically the default setting for anyone in corporate America that decided to try to get a portion (or all) of their company match.

A Target Date Fund ends in a year (i.e. 2050 or 2065). They correspond to the nearest 5 years based on the date you will turn 65.

They are a collection of Mutual Funds that change over time to take you from moderate risk to almost no risk as you get older.

These are used to “help” you retire but most people will see that these funds come nowhere near to beating the market, which is basically investing in the biggest 500 companies in America that have publicly traded stock.

But there is a huge problem with both Mutual Funds and Target Date Funds that no one talks about.

Fees Are Killing Your Gains

There are fees for any sort of investment.

An active Mutual Fund Manager is paid these fees and I have seen those fees go over 2%.

I have seen some low-fee Target Date Funds, but many have fees around 0.75% to 1.5% depending on the company managing it.

Now that doesn’t seem like a lot but let’s look at how much money 1% of fees will cost you over 20 years.

If you want to calculate your own fees on your investments you can go here for the calculator I used above.

Also over the life of a Mutual Fund or Target Date Fund, I have rarely seen 10% gains over 20 years. Normally they are closer to 8%.

Now $340k sounds like a lot of money but could you live on that for 20 years (assuming you will die at 85 with no medical issues)?

Well if you made $125,000 a year when you retired this $340k would last until you were 71 years old!

If you would like to calculate this yourself. Here is the link to the retirement calculator I used above.

I know some of you hate numbers, so let’s talk about what you should do instead.

Need to Save More Money?

Would you like to know how to save $3000 in 3 months or 6 months?

Maybe you are just looking to develop good habits to have an emergency fund to stop living on credit card debt.

Check out my article for many easy-to-use tips, regardless of your income, to save money in the long haul that doesn’t look like “Just use door dash.”

Click here to learn how to save $3000 in 3 months.

The Truth About Index Funds

An Index Fund is a collection of stocks (remember stocks mean you OWN a part of the company). You can buy an Index Fund that is basically the S&P 500.

Remember when we are comparing the Mutual Fund Managers to the S&P 500 and only 6% of them can beat it? Well, you can LITERALLY BUY the S&P 500.

Oh and did I mention that Index Funds have the LOWEST FEES? Yeah, so you can buy the Stock Market standard for almost no fees and keep almost all your money.

What Are the Best Index Funds

So this is the part where I have to give you a disclaimer that you NEED to do your own research before moving money around. And that this article is for entertainment purposes. I cannot tell you the best funds to invest in as that is a personal decision.

I personally use low fees and stick with Index Funds that are considered to be the “Gold Standard” that we measure everyone against.

If you have access to a 401k with Fidelity or Vanguard or Voya or any of those institutions the S&P 500 Index Fund is named a little differently in each. Typically you will find them under a name like “Large Cap Fund.”

The easiest thing to do is to Google the name of your brokerage (Fidelity for example) and “S&P 500 Index Fund“. If you do that you will see a fund called FXAIX and if you don’t have access to that one there are others listed on the Fidelity page listed under the “Similar Funds” section. Your company chooses what funds you can invest in. Also, I want to point out that on the FXAIX the fees are 0.015%! That is far cry from 0.75% and light years away from 2% fees.

If you want to look at other types of funds I would suggest you look up the Russell 1000 and Russell 2000 Index Funds. The Russell 1000 is basically the largest 1000 publicly traded companies in the USA and the Russell 2000 is the next 2000 largest American companies. Between those two index funds, you would own a portion of the 3000 largest publicly traded companies in America.

If you are concerned about only owning stock in American companies you can also search the name of your brokerage (Voya for example) and “international index fund” for the largest Non-American companies publicly traded companies in the world.

So how much do YOU need to retire then?

How to Invest on Autopilot

How do you invest on autopilot?

Take advantage of your employer’s match

Choose the S&P 500 or the Russell 1000 and Russell 2000 to invest in. If you want more diversification add in the International Index Fund as well.

The percentages are up to you, but I personally do a 35% / 33% / 32% split. Remember I can’t legally give you any investment advice as I am not authorized to do so. Please do your own research when you are doing anything with investing.

Once you have your funds set up how you want – you are investing on autopilot.

One thing to note: Once a year go to your brokerage and rebalance your funds to keep your percentages the same. I normally do this when I change out my fire alarm batteries when we fall back for Daylight Savings Time. You can google how to do this with your specific brokerage (Fidelity or Vanguard for example).

What Is the 4% Rule

There is a good story behind the 4% rule and you can read about that here. The summary is that research was done to see how much money you needed to potentially survive the worst economic crisis in history. Out of that, there is a guideline that was adopted by financial advisors that you should be able to withdraw and live on 4% of your total retirement money to ensure you don’t run out of money. If you see the chart above we ran out of money with only $340k if we spend 70% of our last salary a year ($125k) in only 6 years.

So in order to know your retirement figure you need to figure out how much you need to live on today.

Now, this figure can come down if your home will be paid off 100% before you retire. This is partly why many calculators will assume 70% of your current lifestyle will be needed.

So how much do you need?

How to Figure Out How Much You Need to Retire

Well, let’s say you will make $150k a year (in today’s dollars) when you turn 65 and decide to retire.

Well 70% of $150k is $105,000 a year.

If the 4% rule holds true (and some say it should only be 3%) then you would need over 1.9 million dollars saved up by the time you were 65 years old.

If you are in a target date fund that is only getting you 8% returns while the S&P 500 is closer to 12% annual returns (on average over any 20-year period) and you are paying just 1% in fees you are probably going to end up working until you are 70 years old.

So let’s say this article caused you to think that you should probably be saving more money for retirement, how much can you save?

How Much You Can Invest Per Year In 2022

IRA

If you are single and make less than $ or married and jointly make less than $ then you can save up to $6000 a year and up to $ if you are over years old.

401k

If you are single and make less than $ or married and jointly make less than $ then you can save up to $6000 a year and up to $ if you are over years old.

Note that any company match is free money and doesn’t count toward the cap you can put into this number. You are only allowed to put in the max and then if your employer puts in an additional 3%, 5%, 6% or more then that is more money you don’t need to personally save.

If Your Employer Offers a 401k Match – Match It

The above is why it is VERY important that you AT LEAST get all the free money you can out of your employer. So if they do a 5% match, then put in at least 5%.

Ideally, you should work to put in the maximum amount each year the US government allows.

Easy Way to Track Your Retirement Numbers

I use Personal Capital to track how much I am saving.

It gives you your net worth, which is the number if you sold your home and any money in the bank and retirement accounts to pay off any debts you have. That number (positive or negative) is your net worth.

This number is very important because you want it to be as positive as possible. Personal Capital tracks all of this for you.

In addition, Personal Capital has a Retirement tab that lets you put in some quick information (after you have added all of your investment accounts) to see how likely you won’t outlive your money.

They will let you know how much more to save and you can even look to see if you have some high fees that are eating away at your retirement.

So pick up Personal Capital today. It is free and extremely helpful to keep you on track financially.

Are you living your best life or are you stressed about paying the bills?

In this quick 2-page PDF, I cover 5 ways you can get your financial life back on track.

I used to live paycheck to paycheck and after years of paying off debt and maximizing my investments I am now able to save and invest more than 45% of my wife and I’s gross pay.

This allows me to live comfortably (not a crazy rich person) and sleep better at night. If you want this let me know where I can send it to you below.

Wow, you read a lot to get here. Can you do me a favor, please? Can you leave a comment if this was helpful to you or if I missed something? Alternatively, it would help me out a lot if you shared this content with those that might need to see it. Thanks, you are the best!

How to Invest on Autopilot So You Can Retire In Style

We have covered that the S&P 500 is the gold standard that all investments are measured.

You can buy an Index Fund that is basically the S&P 500 for little fees in your existing brokerage account.

You want to invest at least enough to get free money from your company (many do not do this).

And you want to use Personal Capital to track your Net Worth and retirement success percentage so that you can make adjustments today.

If you get to be 60 and start to think about these things it is pretty much too late. You will have to be dependent on the kindness of the Social Security system and that personally scares the crap out of me.

Instead, start investing today! It can be done in about 30 minutes and your future self will thank you.

About Dwight Scull

I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.

I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.

I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.

I used these daily habits to lose 100 pounds and keep it off.

I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.

Join my free Facebook group to get a ton of free resources to help you get out of debt, learn how to invest your money and work toward having the option of retiring early.

Sharing is caring!