Hey everybody,
I currently am saving a certain amount of money each month (100 euro for example) that I want to invest into an ETF.
In an ideal world, there is no broker trading fee and I would be able to invest my 100 euro each month.
In this not so ideal world, I have to wait until I have enough money saved so that the brokerage fee is less significant compared to my investment.
example:
- Saving 100 euro each month
- I am OK with having the brokerage fee represent 1% of my sum that I want to invest
- Brokerage fee = 7 euro
- So that means I have to wait untill I have saved 700 euro (7 euro brokerage fee/700 euro investment = 1%)
- This means that my first 600 euro's are not doing anything in the first 6 months
What if I take advantage of the variation of stock price?
- Save 100 euro each month
- Check what the brokerage fee amounts to percentage wise (compared to my current "stash" of money waiting to be invested)
- Set a buy order lower then current stock price and by the same percentage
Example
- After 3 months I have set aside 300 euro for investing.
- 7 euro brokerage fee / 300 euro investment = 2,33%
- Current stock price = 100 euro
- I set a buy order for three shares at 97,67 euro (2,33% less than current stock price)
- As soon as the price drops 2,33% my buy order will happen
- 97,67 euro x 3 = 293 euro
- Add the 7 euro of brokerage fee = 300 euro
In case the buy did not happen (stock price did not drop 2,33%) before the next saving moment ==> I set a new order:
- After 4 months I have set aside 400 euro for investing.
- 7 euro brokerage fee / 400 euro investment = 1.75%
- Current stock price = 100 euro
- I set a buy order for three shares at 98.25 euro
- As soon as the price drops 1.75% my buy order will happen
- 98.25 euro x 4 = 393 euro
- Add the 7 euro of brokerage fee = 400 euro
The more cash I set aside, the bigger the chance that the variation will cover my brokerage fee (as the brokerage fee percentage drops)
In the worst case, I will have to wait 7 months to invest all my money.
Maybe somebody already has thought of this idea. But I cannot find any information on the internet about it (or I don't know the right search terms).
Can someone share his opinion? Or even do a simulation? I was dabbling with making an simulation in a spreadsheet but I don't have enough knowledge.
Best regards,
Ken