Is there a way to buy ETF shares on a monthly savings plan?

How can I buy ETF shares on a monthly savings plan?

Are there ETF-buying plans available that keep share-buying low?


Click here to see more personal finance questions answered.Q. Does anyone offer a way to buy ETF shares on a regular basis, like a savings plan designed to add a small amount each month? Or is the only option to wait until you have saved enough cash to make an order worthwhile?

Peter, Cambridge, Ont.

A. ETFs offer a long list of benefits, but one of their drawbacks is that they don’t make it easy to invest small amounts. That’s because almost all brokerages charge a commission to buy and sell ETFs: usually $7 to $10 per trade. If you’re contributing $200 per month, a $10 commission is 5% of every purchase. That will quickly erode any benefit you might get from the ETF’s lower management fees.

If you’re looking to invest small amounts with ETFs, you have a few options:

Use a robo-advisor. There are now many online platforms that allow you to build an ETF portfolio with small amounts of money and regular contributions, including Wealthsimple and Modern Advisor. Every time you add money, it’s used to buy new shares, and you’re not charged any trading commissions: instead, you pay a small percentage of your account (usually 0.50% annually) or a flat monthly fee. This makes it cost-efficient for investors adding small amounts each month.

Use a brokerage with commission-free ETFs. Several online brokerages, including Questrade and Virtual Brokers, allow you to purchase ETFs with no commission. Others such as Scotia iTRADE and Qtrade have a limited menu of commission-free ETFs. You still have to place each trade manually, but you can contribute cash to your account automatically and then buy a few shares at a time without paying commissions.

Use the iShares PACC plan. At most brokerages, iShares ETFs are eligible for a pre-authorized purchase plan, or PACC. First you arrange to contribute a fixed dollar amount to your account each month, then you instruct the brokerage to buy a fixed dollar amount of the ETF each month with no commission. Only whole shares can be purchased, so for example, if you set up a PACC for $200 per month and the ETF is trading at $22, you’ll buy nine shares and the other $2 will remain uninvested.

If none of these options appeal to you, Peter, there’s nothing wrong with just saving up a few months’ worth of contributions before you make a trade. If you’re saving $200 per month and commissions are $10, for example, you might make just two trades of $1,200 each year. Having a few hundred dollars sit in cash for five or six months is not going to impact your long-term investment performance.

Finally, while there are some workarounds to the problem of ETF commissions, I encourage investors to consider index mutual funds if they’re making small regular contributions. The TD e-Series funds are even cheaper than robo-advisors, and they allow you to set up a systematic investment plan (SIP) for as little as little as $25 per month.