Save more, sweat less with recurring deposits


Healthy habits like exercising, eating well, and saving are hard for a reason. They take effort, and the results aren’t always immediate.

Except in the case of saving, there’s a simple hack that lowers the amount of willpower needed: setting up recurring deposits.

So kick off those running shoes, because you barely have to lift a finger to start regularly putting money into the market. $2, $200, it doesn’t matter. This one deposit setting, along with a little help from something called dollar cost averaging, can lead to better returns. Our own data shows it:

Over the last decade, customers who used recurring deposits earned 6% higher annual returns than those who didn’t.

*Based on Betterment’s internal calculations for the Core portfolio. Users in the “auto-deposit on” groups earned an additional 1% annualized over 5 years and 6% over the last year. See more in disclosures.

Three big reasons they fared better than those who rarely used recurring deposits include:

  • When you set something to happen automatically, it usually happens. It’s relatively easy to skip a workout or language lesson. All you need to do is … nothing. But the beauty of recurring deposits is it takes more energy to stop your saving streak than sustain it.
  • When you regularly invest a fixed amount of money, you’re doing something called dollar cost averaging, or DCA. DCA is a sneaky smart investment strategy, because you end up buying more shares when prices are low and fewer shares when prices are high.
  • A steady drip of deposits helps keep your portfolio balanced more cost-effectively. Instead of selling overweighted assets and triggering capital gains taxes, we use recurring deposits to regularly buy the assets needed to bring your portfolio back into balance.

recurring-deposits-shoesNow it’s time for an important caveat: The benefits of dollar cost averaging don’t apply if you have a chunk of money lying around that’s ripe for investing. In this scenario, slowly depositing those dollars can actually cost you, and making a lump sum deposit may very well be in your best interest.

But here’s the good news: While DCA and lump sum investing are often presented in either/or terms, you can do both! In fact, many super savers do.

You can budget recurring deposits into your week-to-week finances—try scheduling them a day after your paycheck arrives so you’re less likely to spend the money. Then when you find yourself with more cash than you need on hand, be it a bonus or otherwise, you can invest that lump sum.

Do both, and you may like what you see when you look at your returns down the road.





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