AutoInvesting tiny amounts

I have a savings plan of £300 a month, and would like to take advantage of cost averaging, so I have AutoInvest on.

Most, but not all, of my funds are accumulating, so I do get the occasional payout. In fact, this month I got my largest ever dividend from a single fund - £15! As I have 21 securities in my ISA, this generated 21 transactions, all for tiny amounts ranging from £0.84 to £0.06.

Holding a cash buffer is, unfortunately, not helpful. In my case, I’d set a cash buffer of £10, expecting it would prevent any tiny investments of this type. If I’d set it at, say, £30, then I’d have been fine… until my monthly payment came in, at which point all the cash except £30 would have been invested, and the next dividend of £5.30 would have generated another round of sales.

What I would like is the ability to say:

  • don’t invest money unless there is at least £x in cash in the ISA.
  • As soon as there is £x, invest it all. (I suspect other people would like the option to “invest it all except £y”)

I don’t want a cash buffer, but I also don’t want to generate needless tiny transactions that are ultimately just going to harm investment performance (and, as I understand it, probably cost InvestEngine money). Not to mention that I can’t imagine this sort of thing helps with the dreaded settlement delays!

Hey, thank you for taking the time to share your feedback. We understand the challenges you’ve encountered and recognize that our present AutoInvest setup may not always allow full control over investment threshold, especially in handling smaller transactions generated by dividends.

I will definitely forward your insights to our development team to explore how this functionality can be enhanced. If you have any other suggestions, feel free to reach out!

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I just turn Autoinvest on and of as needed. In general Autoinvest is turned on but if I expect a dividend payment then I turn it off, wait for the dividend to come in as well as my next monthly savings plan and then turn it on - this way the money from the savings plan as well as the dividend get invested in one go.

That’s certainly an option, but I’d quite like to be able to just forget about my investments. In an ideal world I would only log into InvestEngine once or twice a year to sense-check my portfolio and rebalance.

As I recently rebalanced, I think there’s a compromise available where I set my target weights to 0% for a few smaller securities, thus reducing the number of transactions generated by each dividend payment. That does affect cost averaging, of course.

Hi, regarding the target weights … that’s an option but…

What happens if you have new money / dividends coming in and then it autoinvests the money, “looks” at the target weights of all holdings in your portfolio and sells everything with a weight of 0% and reinvests this money into all the remaining holdings?

If you reduce holdings to 0% - your overall percentage still needs to add up to 100% - so IE algo will think that you want to get rid of the 0% holdings. Just sayin’… :wink:

That’s not a problem because AutoInvest doesn’t include rebalancing. InvestEngine will only start to sell securities that have too much in them if I either instruct them to rebalance or manually sell off the excess.

Update: I have managed to take the following steps to slightly reduce the impact of this phenomenon:

  • I double-checked my securities and found three that were distributing that had an accumulating equivalent. I switched to the accumulating equivalent - in two of the three cases (European stocks and European corporate bonds), I actually managed to find lower TER alternatives. This reduces the amount of dividends I receive.
  • I’ve set my securities which make up 1 or 2% of my portfolio to a target weight of 0%, so my dividends and monthly payments will not be invested in these. This isn’t ideal but does stop small amounts being invested in them, prioritising my larger holdings and reducing the total number of transactions in my name. I’ll need to remember to adjust their target weights back up when I come to go my semi-annual rebalancing in July, although frankly I expect I’ll be selling some of them off entirely.

Out of curiosity - can you explain what you mean about lots of tiny transactions harming investment performance? The only reason I can guess for why this would be the case is if there were a slight disadvantage through the quantity purchased being rounded down by 0.000001 of a unit for each transaction. Or is there something else I’m missing?

My thought was that, even though InvestEngine doesn’t charge a trading fee, the transaction costs were still reflected in performance, but that doesn’t seem to be the case.

Bid-ask spread is a factor but only if you’re both buying and selling regularly.