I know a lot of you have been waiting for this, me included!
Ok, they actually added the option a while back, but so far it wasn’t working for some of the most popular European ETFs, including my favorite which my wife and I buy every single month, the accumulating Vanguard FTSE All-World (ISIN: IE00BK5BQT80, VWCE).
I’m happy to report that this has now changed and I’ve successfully placed my first two orders using the new features. Not only that, I like Interactive Brokers implementation so much that I’m thinking about making most of my ETF purchases on IB a recurring investment from now on.
What are recurring investments and why should you care?
First of all, what are recurring investments and why should you care?
You can set a certain amount you want to invest at specific intervals, for example weekly, monthly or quarterly and let the broker buy the shares for you automatically.
This way you’re able to save a lot of time by putting your investments into the stock market on autopilot and take emotions out of the equation – which is usually a good call when it comes to investing!
It’s also an easy way to dollar cost average (dare I say “euro cost average”?) into the market if you have a large sum of money and you don’t want to invest everything at once for whichever reason.
Not only that, even fractional shares are bought using the recurring investment feature on Interactive Brokers – this means your amount is fully invested!
Here’s what I mean:
Let’s say you’re investing 1.000€ and each share of your ETF costs 80€ when the money is invested. You’re now able to get 12,5 shares and fully invest your money instead of what is usually the case – just 12 full shares and then the rest remaining in cash, minus the trading fee (usually 1,25€) of course.
This is a game changer in my opinion, recurring investments and fractional shares were the only two features that were missing for me on Interactive Brokers and I’m so glad they added them!
How to set up recurring investments on Interactive Brokers
Alright, let’s set up our first recurring investment.
First of all, make sure fractional share trading is enabled in your trading permissions under account settings so that you can use the recurring investment feature. I think it should be this one:
Once you’ve done that, here are the next steps in form of a screen recording:
Unless you’re investing more than 500-1.000€ at each interval, I think a monthly frequency is often enough to minimize trading fees.
Most of the ETF investments my wife and I placed over the past 6+ years were simple monthly purchases at a set date (usually the start or middle of each month), so don’t overthink it. You can even set an end date or the number of installments after which you want your recurring investment to be stopped.
Keep in mind, you can pause, edit or delete your recurring investments whenever you want.
You also need to have sufficient cash on our account on the days when our recurring investments are to be executed, otherwise IB won’t be able to purchase the ETF shares for you.
Recurring investments are filled through volume-weighted-average-price orders on the purchase day. All customers buying the same ETF via recurring investments on a given day get the same average price on their investment.
This is actually really neat and in my opinion much better than how German brokers like Trade Republic or Scalable Capital deal with saving plans. I’ll show you why later on.
By the way, if that day happens to be a holiday or the weekend, the shares are purchased the next workday.
Not only that, IB charges the same low commissions for recurring investment trades, so you’re not paying extra for the convenience.
What are the fees? (tiered vs. fixed pricing)
Speaking of fees, Interactive Brokers has two pricing models – tiered and fixed.
The one I recommend for most people and the one I’m using myself is the tiered one. You can switch between pricing models anytime under settings – IBKR pricing plan.
I also created a Google sheet comparing the two models with some calculations, which you can find here. There you can see the approximate fees for ETF orders on Interactive Brokers for us Europeans.
Generally speaking, you’re better off using the tiered pricing model for orders all the way up to 5.500€ each, while for orders over 5.500€, the fixed pricing model starts to make more sense.
Using the tiered pricing model, you only pay 1,25€-1,38€ depending on which exchange IB’s smart routing uses for an order of 2.500€ for example. Those are some of the lowest fees in the industry.
And let’s not forget, Interactive Brokers is not subsidizing the low fees via payment for order flow (PFOF) or share lending either, unlike some other low-cost brokers.
Supported ETFs in Europe
Now, let’s get back to recurring investments. You can only create recurring investments for stocks or ETFs that can be traded in fractions as well.
Since this feature has only started to roll out for European ETFs recently, many are not supported yet, but I’m sure that will change. That being said, the most popular ones are covered already!
- Vanguard FTSE All-World Acc. (VWCE)
- Vanguard FTSE All-World Dis. (VWRL)
- iShares Core MSCI World Acc. (IWDA)
- Vanguard S&P 500 Dis. (VUSA)
- iShares Core S&P 500 Acc. (SXR8)
- iShares Core S&P 500 Dis. (IUSA)
- Vanguard FTSE North America Dis. (VNRT)
- iShares MSCI World Small Cap Acc. (IUSN)
- iShares Core MSCI Emerging Markets IMI Acc. (EMIM)
- iShares STOXX Europe 600 Dis. (EXSA)
- Vanguard FTSE Developed Europe Acc. (VWCG)
You can find the full list of supported ETFs here.
I think that’s a pretty good start. Based on my interactions with you guys over the years, I believe this should already cover the majority of investors on the blog and YouTube channel!
They’re adding more on a regular basis, so the list of supported ETFs will most likely grow significantly over the coming months.
How to buy fractional shares on Interactive Brokers
Getting back to the topic of fractional shares, you can now also get fractional shares when placing an order directly, not just via a recurring investment!
Any stock or ETF that has recurring investments enabled can be directly purchased in fractions as well.
This means you’re now able to invest whichever amount you want fully, instead of only being able to buy full shares and the rest remaining in cash uninvested.
Automate your investments on Interactive Brokers
With the addition of recurring investments we’re finally able to automate our long-term ETF strategies on Interactive Brokers.
Of course you still need to wire your money to Interactive Brokers on time. And before I forget, I recommend adding a few euros extra just to make sure trading fees are covered as well.
As one of you correctly pointed out in a comment on YouTube, many banks don’t support recurring payments to IBANs in other countries.
In this case, a relatively easy workaround could be to set a monthly reminder to wire money to IB:
If you set up a payment template with all the details including the amount beforehand this shouldn’t take more than a minute.
The next step will still be completely automated, IB will invest the full amount of your recurring investment at whichever date you set it up with and also buy fractional shares.
Obviously make sure the money is on your Interactive Brokers account on the date you want it to be invested for you.
Meanwhile, if your bank supports recurring payments to a German IBAN (at least that’s the one I’m given for my account), then you can automate everything. This is possible with Revolut for example.
Alright, I’m pretty sure you can tell that I’m really excited about the addition of fractional shares and recurring investments on Interactive Brokers.
Hopefully this post and the included video tutorials helped you get a bit more familiar with the two new features and how they work!
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