Dear Two Cents,Money experts are really into automating their finances.
But is this always a smart?
The “set it and forget it” method is often suggested for beginners like me.
This sounds great, and it would give me time to focus on other things.
But is it the best way to get a return on my money?
We’ll explain why, but first, let’s talk about what exactly automating means.
You tell your money what to do and where to go, and it passively works for you.
Which means it probably takes a lot of time, too.
Investing guru Warren Buffett has helped to popularize this method.
He talks about index funds a lot.
Index funds offer a rate of return that mirrors the stock market, and they’re very low-maintenance.
So it’s possible for you to invest in them without worrying about their daily valuations.
(I suggest Vanguard’s.)
I believe the trust’s long-term results from this policy will be superior to those attained by most investors…
The idea is that most people can’t beat the market.
Pick your index funds.
Know that your funds will grow over time, without you having to worry about their daily valuations.
Periodically ensure your portfolio is balanced.
You make a smart decision once, and it pays off continually, without you giving it much thought.
As you mention, another big draw is time.
You have more time to focus on other things.
Financial author Ramit Sethi would agree.
It will help you automatically manage your money, guilt-free, for years to come.
For example, not worrying about investing frees up time that you could spend honing your job skills.
The Disadvantages of Automating
But there are some solid reasons to be active, too.
We’ve written about this before.
Financial writer Carl Richards recommended theslow-tech approach to finances.
To help you in making your decision, it’s worth noting the drawbacks of maintenance-free investing.
With passive investing, there’s no protection against this.
Lack of Reactive Ability: Pinsent explains that, sometimes companies are under- or over-valued on the market.
An active investor can take advantage of this and buy or sell accordingly.
Of course, there are valid counter-arguments for each of these points.
Most of the actions in these points require a lot of time and a deeper knowledge of investing.
Ultimately, you have to consider both sides, and do what works for you.
But, obviously, we’re generally fans of efficiency and productivity.
And that’s what “set it and forget it” investing is all about.
you’ve got the option to focus your time and energy in other areas.
You might focus it on other ways to invest in your futuremaking yourself anindispensable worker, for example.
Sethi calls it the bigger picture.
You want to check that you haven’t miscalculated your budget.
You want to check that your portfolio is balanced.
Automating is great, but you should get hands-on every now and then, too.
