Need help with adjusting dollar-cost averaging strategy for VWCE

[pampermommy]

Hello everyone,

my plan was to buy 1 share (approx. 97€ currently) of VWCE ETF every month on IB. However, after I bought the first share I noticed that the fee was 1.25€.

And, since the fee would be pretty much the same if I would buy 2-5 shares, I thought about changing my strategy to buying X shares every X months, where X is not 1 (e.g. 4 shares every 4 months).

But, what's the upper limit of months that I can do without blowing up the whole point of the dollar-cost averaging strategy?

Is it maybe the optimal scenario in this situation to buy 3 shares every 3 months or do you have different thoughts?

EDIT: While having the conversation in the comments, I remembered the Elbow method I used previously while programming. The method is a heuristic used so you can find out the "optimal" number of clusters in your dataset by finding the elbow in the graph.

So I plotted the graph for my scenario and got the "elbow" for 3 shares. However, I want to take into account that dollar-cost averaging suggests investing regularly as possible so that I'm not out of the market.

That's why my conclusion is that the optimal decision would be to buy 2 shares every 2 months because the difference in the fee between 2 and 3 months (0.215%) is not sufficient to justify missing out on the market.

EDIT2: Great investment calculator shared by r/-Ricardo: https://investcalc.github.io/

Thanks, everyone, for the help!

 

[kaytiedid]

@pampermommy Background: The fee is 0.050% with min EUR 1.25 and max EUR 29.00 (source).

Estimations: You paid 1.25 / 97 = 1.28 % fee due to the minimum fee. This is not extremely bad... The usual suggestion is to keep the fee below 2-1.5%.

Idea: You can invest 200 (assuming a fixed amount of 100 monthly savings) per 2 months and pay (1.25 / (100*2)) * 100 = 0.625% fee which is nothing. Or invest 300 per 3 months and pay (1.25 / (100*3)) *100 = 0.41% fee.

In all these cases, you will be paying the minimum fee of 1.25 euros.

 

[coltlane]

@kaytiedid Second this.
The fees are not extremely high, but I'd personally hold that amount for one month and invest every couple of months to make the fees even lower.

 

[pampermommy]

@kaytiedid And now you've come to my questions.

Should I continue this process and invest 400 per 4 months and pay (1.25 / (100*4)) *100 = 0.3125% fee. Where do I draw the line? What are some experiences that can people share with this process?

Also, I would like to calculate in there that my money isn't in the market for that period, so I have an opportunity cost as well?

 

[coltlane]

@pampermommy For adc strategy, the shorter period between investments, the better.
The reason for that is because you're investing on an averaged long term growth expectation. I don't have experience on this, so I cannot share how this strategy worked out for me. But past performance is not an indicator of future gains.
What happens if you hold for a few months and unluckyly on "the investment month" the prices peak for whatever reason?

 

[pampermommy]

@coltlane Thank you for the comment and your thoughts, they helped a lot.

Please check the edit of my original post to see the decision I've made.

 

[jeff102]

@pampermommy at a certain point in time you have to forget about % and ratio and realize you are thinking about spending a bit more than 1€ every 3 or 4 months. While the discussion is interesting from an analytic perspective, it should not become a barrier for investing - there are many ways in life to save 1€ here and there ;-)

 

[kaytiedid]

@pampermommy Personally, I pay 2 euros for an ETF and I invest every month and the fee I pay is 0.6% based on the amount I invest.

In your case, I would invest every 2 months max. Also, keep in mind that DCA would be better on a more frequent basis than "every quarter".

PS: In the elbow method you have assumed a fixed share price but this is not true as the price changes and usually go up in the long run.

 

[pampermommy]

@kaytiedid What platform do you use?

Yes, my conclusion as well is to invest every 2 months after this analysis.

I have tier pricing in IB so it should be consistent for a small amount of shares.

 

[kaytiedid]

@pampermommy I use Degiro. VWCE is free but for VUAA I pay 2 euros per transaction.

 

[pampermommy]

@kaytiedid Ah, I'm based in Croatia, so I can't use Degiro.

 

[kaytiedid]

@pampermommy IB is great as well as far as I know

 

[pampermommy]

@kaytiedid Yes, but it's not free for VWCE.

 

[mrswright]

@pampermommy Very roughly, let's say you expect a 6% average yearly return, or 0.5% monthly. You could do a lot more math accounting for monthly compounding, but the end result will be similar enough for a ballpark figure.

If waiting an extra month reduces your fees by more than 0.5%, you should probably wait. In this case, buying every two months seems better than buying every month. If it reduces your fees by less than 0.5%, don't wait.

 

[freshbrood]

@pampermommy Great info here already, so I'll just post this useful calculator that I used when I had the same question:

https://investcalc.github.io/

If you have your money sitting in the bank (0% interest), for an expected 5% return you are better of investing once every 3 months.

Note that some countries have negative interest rates on savings account (around -0.5%). If that's the case (the calculator allows negative interest rate on savings), you are better of investing once every 2 months.

 

[pampermommy]

@freshbrood Yes, my money would be sitting at the bank with 0% return.

When I used the calculator with my numbers, it showed the same conclusion I've come up with: "Optimal investment schedule: Invest $230 once every 2 months. This amount includes the brokerage fee."

Thank you for sharing the link.

 

[snappy1]

@pampermommy You should compare "Money out of the market"(Money x Time) × "expected Return" vs. Fees. E.g. for buying every two months you have 100.- out if the market for 1 month: 100.-×(1/12)×0.06=0.50 expected loss.

Overall I agree though that both values are small and its not that crucial how frequently you buy.

 

[parobinson]

@snappy1 100*1.06[sup]1/12[/sup]-100, to be more precise.