Automatic Investment Plan (AIP)
What it is:
How it works/Example:
Let's assume you want to save money for a down payment on a house. You could A) attempt to set aside whatever money you have left at the end of the month, or B) implement an automatic investment plan into a savings account.
Here's how it works:
Dividend reinvestment plans -- where investors use dividends to purchase more shares of the stock paying the dividends -- are one common type of automatic investment plan. Employees who contribute to their 401(k)s are also taking part in an automatic investment plan, whereby their employers deduct a specific amount from every paycheck and automatically deposit it into a retirement account.