What is Fractional Share?
Fractional investing is a strategy that involves purchasing parts of shares. Buying fractional shares makes it easier for small investors to buy shares that are priced too high. You can purchase fractional shares through a dividend reinvestment plan or an online automated investment plan, and directly from some brokers.
Benefits of Fractional Investing
When you invest using fractional shares, you benefit from flexibility and efficiency. You can start earning returns on your money sooner. Depending on the broker you use and the companies you have access to, you can start investing with less than $5 when using a fractional investment strategy. The earlier you start investing (and taking advantage of compound returns), the better off you will be in the future. Additionally, with fractional investing, you have the opportunity to invest in companies that you may not be able to afford to buy full shares of.
How to Buy Fractional Shares
Many online discount brokers that offer automated investment plans also allow participation in fractional investing. If you agree to invest a specified amount of money each month, the broker will automatically purchase as many full shares of individual stocks or ETFs as possible (based on price). This can mean buying fractional shares if the amount you are investing is not enough to buy a whole share.
You can contact the online broker of your choice to see if they allow fractional investing. You can also find out the price of this service, which may differ from other types of investing.
You can also start with robo-advisors and startups that make it easy for you to invest when you have just a few dollars a month. Companies that offer fractional investing include: Betterment, Motif, Stash, Stockpile, Fidelity, Charles Schwab.
If you are a beginner in investing, it may make sense to start with index funds, such as the S&P 500 ETF. While it’s not quite the same as owning shares of Apple or Alphabet Inc., investing in an index fund that includes these stocks allows you to benefit when their values increase. You benefit from the performance of a broader range of the market rather than watching your portfolio live or die based on the performance of a few stocks.
Use fractional shares to start investing today and build a foundation for your portfolio. As you learn more about investing and start to see returns, you can adjust your strategy to include different types of assets and even purchase full shares of some of the more expensive stocks.
Frequently Asked Questions (FAQs)
Can I make money from fractional shares?
You can earn money or lose it with fractional shares just as easily as with full shares. The only thing that changes with fractional shares is the amount of cash you will earn or lose. If the price of a stock rises by $10, and you have 0.25 shares, you will make a profit of $2.50.
Which brokers offer fractional share investing?
Most major brokers offer fractional share investing, including Charles Schwab, Betterment, SoFi, Fidelity, and Interactive Brokers. You can try out various brokers and choose the best one based on their investment options and app design or trading resources.
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Sources:
U.S. Securities and Exchange Commission. “Fractional Share Investing – Buying a Slice Instead of a Whole Share.”
U.S. Securities and Exchange Commission. “Direct Investing.”
Source: https://www.thebalancemoney.com/fractional-investing-without-much-money-4157620
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