Personal Finance & Money Asked by alphacentauri on May 24, 2021
The fee structure of my online broker would make a broadly diversified portfolio consisting of up to 8 ETFs very expensive in transaction fees if I decided to make monthly purchases for the purpose of Dollar Cost Averaging. Changing brokers is after all considerations not an option, therefore I would like to hear an opinion on what’s the better option: reducing the number of different ETFs in the portfolio (and thereby lessening diversification) or not using Dollar Cost Averaging but instead rebalancing and upgrading the portfolio every six months?
Thank You!
If we can't question your premise, the high cost of transactions or the need for 8 ETFs to feel diversified, then I'd suggest making the monthly contributions to one ETF per month. Next month, buy the second ETF, and so on.
Over the long term, the difference between this and buying all 8 every month will be negligible.
Instead of needing to rebalance, ever, consider that over time, if you line up all 8 by current value, deposit to the lowest total valued ETF. This will maintain balance over time with fewer transactions.
To clarify - You deposit 1000 (no currency, as I don't see country tag) each month. After 40 months, each ETF has seen 5000 deposited. But the values are not close, they are not 12.5% each. That is when you consider depositing to the ETF with the lowest balance. With a zero commission, one might simply rebalance at year end with multiple transactions, but for you, this minor change to how you deposit will maintain a close set of percentages to your target.
Answered by JTP - Apologise to Monica on May 24, 2021
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