Passive investing for European investors in practice: opening an account

As discussed in the previous posts I wrote on the topic of passive investing with having European investors in mind, many people understand that passive investing is a solid cost-efficient way to hold a diversified portfolio without spending too much time on it.

It is easy, however, to give up this advantage by choosing wrong/high cost intermediaries. When you choose a broker to open your investment account, you should have the following in mind:

  • Choose solid well known brokers with proper legal structures in place where client accounts are held completely separate from the broker entity (see MF capital)
  • Make sure you will be able to buy the instruments you are intending to buy. This is, in general, not an issue in the ETF space EXCEPT that European investors can’t buy US listed ETFs which is a restriction independent of a broker you choose.
  • Choose a low cost broker. As I wrote earlier, cost advantage is your major motivation if you decide to go passive. Make sure you don’t lose this advantage by picking a high cost broker.
  • Consider the fee structure in relation to your portfolio size. Certain fees might be fractions of the amount invested/transaction amount. Some fees are fixed amounts disregarding the size. If you always pay 5 euros per transaction, make sure you don’t invest in chunks of 100 euros!

To be perfectly clear, I don’t have any affiliation with any of the brokers I mention here. The examples I am going to give are based on my experience and (possibly) limited knowledge of alternatives. Please share with me any better alternative you might find!

Degiro is well known in the Netherlands. (would be curious to hear opinion from other countries!) Their mobile app and overall service has improved a lot from their somewhat wilder beginnings. Flatex might be even cheaper alternative (see this comparison of Dutch brokers) but I don’t have any personal experience – please share in the comments below if you have any! From the comparison it’s also fairly clear that the tariffs offered by banks are usually the most expensive (more on this in fd).

If you have larger amount of money and you might also choose Interactive Brokers. IB provides very professional service and platform and low transaction costs but there are fixed costs to be paid monthly which makes this unsuitable for lower amounts. Note there will be a lite version coming up in October with no minimum amounts and ultra low fees – very excited about this.

Published by everydayinvesting

Amsterdam based. There will definitely be a bias towards topics relevant to my work. I'm interested in investing, markets, economics, politics, history but also machine learning, statistics and how (whether) all these can be combined. I have questions and let me know if you have answers! Always happy to discuss any of the below and more. - can machine learning be applied to investing? - what's the future of active investment management? - what's the future of passive investment management? - where's the best trade now?

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