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 in regular intervals. Funds can be deducted from an individual’s paycheck or paid out from a personal account.

BREAKING DOWN '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 setup automatic withdrawals from a personal account.

Employer Sponsored Automatic Investment Plans

Employers offer various options for automatic investing through their benefit 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 benefit 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 benefit 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 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. (See also: How to Micro-Invest with Acorns and This App Invests Your Spare Change in Cryptocurrencies.)

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 benefit 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.

  1. Automatic Stabilizer

    Automatic stabilizers are economic policies and programs designed ...
  2. Automatic Execution

    Automatic execution helps traders implement strategies for entering ...
  3. Automatic Reinvestment Plan

    An automatic reinvestment plan is a mutual fund plan that automatically ...
  4. Allocation Rate

    An allocation rate is a percentage of an investor's cash or capital ...
  5. Automatic Stay

    An automatic stay is a legal provision that temporarily prevents ...
  6. Asset Management

    Asset management is the management of a client's investments ...
Related Articles
  1. Retirement

    Voluntary 401(k) Contributions: A Thing Of The Past?

    Contributing to your retirement plan may no longer be voluntary, but automatic enrollment has a number of benefits.
  2. Investing

    Why 401(k) Auto Enrollment Might Not Be for Everyone

    New research shows that automatic enrollment in retirement accounts like 401(k)s may not always be in the best interests of all employees.
  3. Retirement

    Why Auto-Enrollment Will Save Your Retirement

    Savers need all the help they can get, even if it amounts to an offer they can't refuse. That's why the biggest improvement to 401(k)s is auto-enrollment.
  4. Retirement

    5 Companies With the Best Retirement Plans

    Ever wonder how your company retirement plan stacks up against the country's best employers? Take a peek at these great retirement plans.
  5. Investing

    4 Ways to Use Automation to Improve Your Finances

    Consider these four easy ways to use automation to improve your financial situation.
  6. Retirement

    Anytime Is The Right Time To Start Saving For Retirement

    If you're looking to start building your nest egg but don't know how to do it, read on. We give you a few easy tips on how to save.
  7. Personal Finance

    How to Make Yourself Save Money

    Most people find it difficult to save money. Here are some strategies to make it easy.
  8. Trading

    Automated Trading Systems: The Pros and Cons

    Automated trading systems minimize emotions, allow for faster order entry, lead to greater consistency and resolve "pilot error."
  9. Managing Wealth

    Using Time Horizons To Reach Your Goals Investing

    Time horizon investing is all about planning, thinking about your goals and selecting investments based on the amount of time you have to meet them.
Trading Center