Called Schwab Stock Slices, investors will be able to trade fractional shares of any S&P 500 company starting at $5 each.
Traditionally, to buy an individual stock you needed to at least cover the price of one share, which can range from a few dollars to a few thousand, depending on the company. That left many unable to invest in pricey companies like Amazon, which is currently over $2,300 per share.
But using the new online tool, investors can buy up to 10 different stock "slices" in a single order. Each stock will cost the same amount of money regardless of its share price. Each slice counts as a separate investment and can be sold individually.
That means if you had $30 to invest and wanted to buy Amazon, Facebook and Google, you could buy $10 worth of shares for each company, regardless of their share price, commission-free. That brings down the cost of entry significantly for those interested in trading individual stocks.
These "slices," as Schwab is calling them, are available in the company's brokerage accounts, custodial accounts for kids and individual retirement accounts, and can be traded in real time throughout the day.
Other brokerages, including Fidelity, Robinhood and SoFi, also offer fractional investing.
If you are interested in investing in fractional shares, first make sure you are contributing a healthy sum to a retirement account and investing in low-cost funds that track an index like the S&P 500, rather than picking and choosing individual companies to invest in, financial experts say.
If you are already contributing to a diverse array of funds in your retirement account and want to dabble in individual stocks, then offers like Schwab's can be an opportunity to buy into expensive companies, or test out a company without spending a ton of capital upfront.
But your first priority should be your retirement investment accounts. Investing in index funds helps diversify your holdings, which is helpful if there is a downturn in a certain sector. Index funds are also cost-effective and research indicates time after time that passively managed funds perform better than actively managed funds.
Fractional investing shouldn't be the basis of your retirement savings, but if you want to build on what you already have, it can be a good addition.
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