Masters in Business

At The Money: Automate Your Investing

November 6, 2025

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  • Automating investments through features like auto enrollment, contribution increases, and target date funds significantly reduces behavioral errors and helps investors capture more of their funds' total returns, as evidenced by a much smaller investor gap (0.1% vs. 1.2% annually) compared to discretionary trading. 
  • Auto enrollment is the most critical automation feature because it ensures participation, allowing investors to compound wealth even if they experience some return friction, preventing capital from sitting idle in cash. 
  • When selecting platforms for automation outside of retirement plans, investors should prioritize the organization's culture, staying power, investor centricity, and fee structure, as these factors speak to the firm's long-term commitment to the investor's best interests. 

Segments

Defining Investment Automation Features
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(00:01:56)
  • Key Takeaway: Automation features include steady paycheck deductions and regular rebalancing, which are often standard or defaulted in retirement plans.
  • Summary: Automation in investing improves returns by reducing emotional decision-making and market timing pitfalls. Features like auto enrollment and auto escalation are key components often found in retirement plans. Auto enrollment ensures participation, while auto escalation steadily increases the contribution rate over time.
Data Supporting Automation Benefits
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(00:04:02)
  • Key Takeaway: Investors using automated allocation funds, like target date funds, experience almost no gap (0.1% annually) between their returns and the fund’s total return.
  • Summary: Research shows that investors in allocation funds, typically defaulted and automatically invested into, capture nearly all of the fund’s returns. In contrast, investors in other fund types (like sector or thematic funds) experience an investor gap of about 1.2 percentage points per year due to discretionary trading. This gap highlights how automation reduces unnecessary trading and emotional responses to volatility.
Comparing Auto Enrollment vs. Escalation
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(00:08:23)
  • Key Takeaway: Auto enrollment is significantly more important than auto escalation because participation is the prerequisite for compounding wealth.
  • Summary: Vanguard data shows that 61% of serviced plans offer auto enrollment, and 98% of those default participants into a target date fund. Auto enrollment prevents money from accumulating as cash, which is harmful to long-term compounding power. Furthermore, target date fund investors transacted only 1% of the time last year, compared to 11% for other fund types.
Automation for Non-Qualified Portfolios
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(00:10:39)
  • Key Takeaway: Non-qualified accounts should utilize auto investment plans, focusing on allocation funds like target date or target risk funds to fix asset allocation.
  • Summary: Investors should set up an auto investment plan for non-qualified holdings, similar to retirement plan setups. Once a plan is established, such as using an allocation fund, the investor should automate the process to avoid making manual adjustments. The goal is to automate consistently to maximize compounding and capture total fund returns.
AI’s Future Impact on Investing
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(00:11:33)
  • Key Takeaway: AI can help investors formulate plans and optimize asset allocation, but it risks engendering overconfidence leading to trading outside their competence.
  • Summary: AI tools can increase investor productivity by helping formulate plans and determining optimal asset allocation consistent with risk parameters. However, a major risk is that AI might cause overconfidence, leading investors to make trading decisions beyond their circle of competence. Tools must be used to advance goals without succumbing to impulsive overconfidence.
Platform Selection Criteria for Automation
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(00:12:47)
  • Key Takeaway: When selecting an automated platform, confidence in the organization’s culture, staying power, investor centricity, and fee fairness are paramount.
  • Summary: Because automated solutions like target date funds often involve an all-in-one decision with a single provider, the firm’s reputation is crucial. Investors must research to ensure the firm has a strong pedigree and is likely to remain solvent over the investment horizon. Low fees are a strong indicator of organizational fiber and commitment to investor success.