After reading a lot about funds and low-cost index funds in particular and the inefficiency of most actively managed funds, I decided I will stop giving my money to fund managers. Therefore, I decided to start investing in passive index funds and not active funds. Moreover, I also decided to only focus on no-load funds. Currently, I was investing with PostFinance funds, but the Total Expense Ratio (TER) of these funds is high and PostFinance is charging a 0.5% percent load on each buy of funds.
Since we do not have access to excellent mutual funds such as Vanguard funds here, I decided to invest in Exchange Traded Fund (ETF) versions of the funds. This means I need a broker to invest. I looked at the trading offer of PostFinance but it is insanely expensive. Therefore I decided to find a new broker with significantly lower fees.
The links to DEGIRO are affiliate links. If you use them to create an account, you will receive 20 CHF in transaction credits and I will also receive 20 CHF.
Choosing a broker
The first thing I had to do was to choose a broker. There are really a lot of options. The choice will depend on your investing style of course. Personally, I plan to invest once a month, maybe twice a month, but no more. I will follow a buy-and-hold strategy, meaning I will only sell if I need the money (long-term). If there is a strong imbalance in my portfolio, I may sell to rebalance it as well. I have compared a lot of brokers and three candidates have interested me:
- Interactive Brokers
Swissquote is my favorite Swiss broker. But looking at the commission fees and the custodian fees, it cannot compare to the other twos. Interactive Brokers is a very popular broker with very good fees and an excellent reputation. DEGIRO is a younger broker with outstandingly low fees. I have struggled quite a lot to decide between those twos. But finally, I am going with DEGIRO. The fees are really low and overall it seems alright. Moreover, even if there were some problems at the beginning, it seems they are really working on improving their system. The two main reasons for choosing DEGIRO over Interactive Brokers were:
- No custodian fee! At Interactive Brokers, you have to pay 10 USD per month if you do not have at least 100’000 USD. Since my portfolio will be very small to start with, I did not want such fees.
- One free ETF per month! At DEGIRO, you have a list of free ETFs. Each month, you can trade one of these ETFs, in any direction (buy/sell), free! This was also a very important factor for me to lower the costs.
Opening an account on DEGIRO
Therefore, I just opened an online DEGIRO account. The process is quite simple. You need to fill out a bunch of personal information. Then, you need to activate your account from your mail. And then again answer a bunch of questions about you and accept the conditions. There is a very important step here! You can select which kind of account you want. There are two types of account: Standard and Custody. The default option is the standard account. In the standard account, DEGIRO can loan your securities. Personally, I cannot accept this. On the other hand, the Custody account means the securities are held separately and cannot be loaned to third parties. There are a few disadvantages of having a custody account:
- You cannot trade short
- You do not have access to debit money
- You cannot trade turbos, speeders and sprinters
- You have to pay if you want real-time prices
- You cannot trade derivatives
And finally, you will be charged 3% of the dividend you get. This may seem high, but unless you highly focus on dividend income, I think it is fair. If you got a yield of 2%, this fee is a 0.06% fee overall. Moreover, if you get only accumulating ETF, you should not have this issue.
I strongly recommend for the custody account, but it is up to you. When they ask if you accept your securities to be loaned, you can say you want a custody account instead. This is what I did.
Then, you need to make a first deposit to validate your account number. You can either make it instant with Sofort or make a regular bank deposited. I chose to deposit 1 CHF with instant deposit.
Finally, your account is ready. If you do it, I strongly recommend you to turn-on two-step verification. This can be done with a Google Authenticator.
I just send a deposit to DEGIRO, but since it is Friday, it will only go on Monday. To save some time, I should have done that yesterday… I will keep you up to date as soon as I got my money on DEGIRO and I can try the first trade. I will also try to post my Portfolio once it is ready. In the meantime, enjoy your weekend and have success with your investments.
What do you think about DEGIRO ? Which broker do you use ?
N.B. I am not a financial advisor and not nearly an expert in investing. What I share here is my experience, not financial advice.