How much money do you need to follow a monthly tactical strategy without commissions eating the edge?
A common question before starting: how much do I need to follow a strategy like HAA or Dual Momentum? There is no magic number, but there is a way to estimate it: compare the fixed costs of trading with the size of the portfolio.
Why size matters
Many costs are fixed per order: a minimum commission, a spread you always pay, a share that cannot be split. With $50,000 that cost is irrelevant; with $2,000 it can consume a good part of the edge the strategy is trying to capture.
Many US brokers now charge $0 per ETF trade, which changes the maths. If yours does, the fixed commission drag below is close to zero and the spread and taxes become the main costs.
A simple calculation
Assume, hypothetically, a broker that charges $3 per order. A typical rotation moves four positions, that is, four buy or sell orders a month.
- Monthly cost: 4 × $3 = $12.
- Annual cost: $144.
That fixed cost weighs very differently depending on capital:
| Capital | Annual commissions | Share of portfolio |
|---|---|---|
| $2,000 | $144 | 7.2% |
| $5,000 | $144 | 2.9% |
| $20,000 | $144 | 0.72% |
| $50,000 | $144 | 0.29% |
These are illustrative numbers: replace the $3 with your broker's real fee. When the annual cost exceeds 1% of the portfolio, the strategy needs a large margin to compensate.
The whole-share problem
An ETF is bought in whole shares unless your broker allows fractions. If a share costs $100 and you split $500 across five assets, each weight is rounded and the real portfolio drifts from the theoretical one. With small capital the difference can be noticeable. Many brokers now offer fractional shares for ETFs, which removes the issue.
Practical rules
- Work out the annual cost with your fee and four or more orders a month. If it is above 1% of the portfolio, rethink the frequency or the broker.
- Look for brokers with no minimum or $0 commissions if your capital is small.
- Reduce turnover where you can: use strategies with few assets, or one that only changes on a clear signal.
- Contribute regularly and use each contribution to rebalance rather than sell. The rebalancing calculator and the contribution simulator show the effect.
What capital is reasonable
There is no official threshold. As a guide, if your fixed annual costs stay below 0.5% of the portfolio, the strategy can usually absorb them; between 0.5% and 1% look at it carefully; above that, commissions become a drag. It is a common-sense rule, not a guarantee.
Remember that taxes add to trading costs; see US taxes on ETF rotation.
This guide is informational and is not financial advice.
Frequently asked questions
Can I start with little money?
Yes, but with less capital use a low-cost broker and a low-turnover strategy, or simply a periodic savings plan.
What if my broker allows fractional ETF shares?
It removes the whole-share problem, although per-order costs may still exist.
Is trading less often worse for the strategy?
It can move you away from the backtest's rules. It is a balance between fidelity and cost.