What Is an Automatic Investment Plan (AIP)?
An automatic investment plan is an investment program that allows investors to contribute funds to an investment account at regular intervals. Funds can be deducted from an individual’s paycheck or paid out from a personal account.
Understanding an Automatic Investment Plan (AIP)
An automatic investment plan is one of the best ways to save money. Numerous market mechanisms have been devised to help facilitate automatic investment plans. Investors can contribute through their employer by scheduling automatic deductions from their paycheck for investment in employer-sponsored investment accounts. Individuals can also choose to set up automatic withdrawals from a personal account.
Employer-Sponsored Automatic Investment Plans
Employers offer various options for automatic investing through their benefits programs. Investment options help to support both short-term and long-term investment goals for employees. The most common investment vehicle for employer-sponsored automatic investing is a 401k. Employees can choose to automatically invest a percentage of their paycheck in an employer-sponsored 401k. Many employers will often match a percentage of their employees’ automatic investment as part of their benefits program.
Companies may also offer additional options for automatic investing such as company stock or Z-shares at a mutual fund company. These automatic investing options help to promote loyalty and long-term tenure.
Additionally, some companies may partner with financial firms through their benefits program to offer other options for automatic investing. These partnerships can support short-term investing goals and holistic financial planning. Benefit program partnerships may allow for automated investing in customized investment accounts or to an account that is managed by a robo-advisor.
Automatic Investment Plans for Individuals
Outside of employer-sponsored automatic investment plans, individuals also have a wide range of options to choose from in the investment market. Nearly every available investment account offering provides investors with the option to make automatic investments.
Some of the most common investment accounts for making automated investments include retirement accounts and brokerage accounts. Some retirement accounts offer incentives for investors to make automated investments such as Capital One Investments. This platform offers investors discounts on trade commissions when they make automated investments on Tuesdays. Many investing platforms also offer options for electing to save automated investments in a money market account, earning interest until the money is allocated to other types of securities.
In the fast-growing fintech market, many new options for automated investing are also being introduced. Fintech companies offer micro investing platforms that allow investors to make automatic investments in small increments. Acorns provides one example. The platform connects with an investor’s bank account to invest spare change from each purchase in an elected investment portfolio.
Automatic Investment Plan Advantages
There are numerous techniques and market products available for investors interested in making automatic investing contributions. Investors making automatic investments through an employer-sponsored benefits program will also typically save money on transaction costs and experience lower fees.
By "paying themselves first" many people find they invest more in the long run. Their investments are treated as another part of their regular budget. It also forces a person to pay for investments automatically, which prevents them from being able to spend all of their disposable income.