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Let's say every month I transfer $559, which is about 3 shares of VOO. The commission from Fidelity is $7.95, which is about 1.42%. Is it worth doing that, or better, every other month buy worth of $1118 of VOO and pay the same $7.95 commission?

Is there a general guideline for buying a certain amount of an ETF when paying a commission?

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2 Answers 2

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Neither. For frequent small purchases, use an indexed mutual fund. The benefit is no commission, and the ability to invest the exact amount you wish each month.

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    IVV trades commission free at Fidelity.
    – CodeCrack
    Feb 20, 2014 at 0:16
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    Assuming you can find one with expense ratios as low as ETFs while meeting the minimum investment requirements.
    – Craig W
    Feb 20, 2014 at 0:20
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    VFIAX .05% low enough? Me? I'll stick with VIIIX .02% or to put into perspective $200 per $million per year
    – JTP - Apologise to Monica ♦
    Feb 20, 2014 at 0:26
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    As long as the OP doesn't mind switching brokerages to Vanguard, and has the $10,000 minimum investment for VFIAX, or $200 million minimum investment for VIIIX.
    – Craig W
    Feb 20, 2014 at 0:32
  • I missed the min on the first fund. The second is offered through 401(K) providers.
    – JTP - Apologise to Monica ♦
    Feb 20, 2014 at 0:45
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Likely a far better alternative than buying VOO monthly or every two months would be to buy IVV, the iShares S&P 500 ETF, so very similar to VOO but with a slightly higher expense ratio of 0.07% versus 0.05%. It trades commission free at Fidelity so you can buy as often as practical. Unless you are buying a very large number of shares at once (tens of thousands of dollars worth, I would guess), and keeping them for several years, I doubt that 0.02% expense ratio difference will outweigh the $7.95 commission.

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    I disagree. 0.01 in expense ratio will cover the 7.95 commission in about a year and a quarter at this amount. So unless the OP plans on holding for less than 2.5 years, VOO makes more sense, even if buying for $660/month and selling each position separately.
    – littleadv
    Feb 19, 2014 at 23:51
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    Can you break down the numbers? I might be calculating the expense ratio wrong but it seems like… VOO expense ratio is 0.05% btw and IVV is 0.07% Let's use 3 years as an example. Commission paid each month = 7.95 x 12 x 3 = $286.2 paid in commission in 3 years… Now the 0.02% expense ratio difference is.. 0.02% of 559 each month is 0.1118 x 12 = 1.3416 x 3 years = $4.0248
    – CodeCrack
    Feb 20, 2014 at 0:10
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    @littleadv - .01% or as they say 1 basis point, is 1/100 of a percent, or $1 per $10,000 per year. There's a break even but it's a bit longer.
    – JTP - Apologise to Monica ♦
    Feb 20, 2014 at 0:17
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    @JoeTaxpayer oh right:)
    – littleadv
    Feb 20, 2014 at 0:17

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