Buying into big-name companies can come at a steep price, with a single share sometimes costing thousands of dollars. The good news is you can get in on top stocks without sinking your entire nest egg. Many investment platforms allow clients to purchase fractional shares, or a portion of a single share of stock.
"Fractional share investing is a trading function that brought Wall Street closer to Main Street," Kevin Driscoll, vice president of advisory services at Navy Federal Investment Services told CNBC Select.
Investors can use fractional share investing to buy a specific dollar amount of stock or exchange-traded funds and their trading platform will calculate what combination of full and/or partial shares are needed to execute the trade, Driscoll explained.
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Are fractional shares right for you?
Although every individual's financial situation is different, Driscoll says fractional share investing can benefit most investors.
It gives those just starting out or with a limited budget access to the market. For more experienced investors, it also allows you to invest a specific dollar amount and helps diversify your portfolio with a wider range of stocks or ETFs.
Charles Schwab's Stock Slices program, for example, lets investors purchase a fractional share of any stock listed in the S&P 500 — from a single slice (fractional share) up to 30 — for as little as $5 each. Fractional shares at Schwab are traded commission-free online, similar to regular stocks.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
SoFi Invest® is another broker that offers fractional shares with zero trading commissions. Investors can start with just $5 and access more than 4,000 stocks and ETFs.
SoFi Invest®
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active or automated investing, or to participate in IPOs. $5 minimum to own a fractional share of a company.
Fees
Fees may vary depending on the investment vehicle selected. Active investing has zero commission fees for trading stocks and ETFs (exchange and fund management fees may apply). Automated investing has zero management fees
Bonus
Download the SoFi app and get up to $1,000 when you open an Active SoFi Invest® Brokerage Account. SoFi covers up to $75 of any transfer fees your brokerage may charge when you transfer an account to SoFi
Investment vehicles
Robo-advisor: SoFi Automated Investing IRA: SoFi Traditional, Roth, SEP and Rollover IRAs Brokerage and trading: SoFi Active Investing
Investment options
Stocks, bonds, ETFs, fractional shares and IPO participation
Educational resources
Investors can create a personal watchlist that follows their stocks to stay up to date and receive the latest investing news
Terms apply.
What to look out for when buying fractional shares
Getting in on a hot stock may be thrilling, but investors should keep other factors in mind before buying fractional shares, including their time horizon, investing goals and risk tolerance.
"Identifying how much money to invest with personal goals in mind will allow everyone to diversify their investments by purchasing part of household-name companies," Driscoll said.
There's no limit to the number of fractional shares an investor can buy across different companies. Generally speaking, however, Driscoll says "investors should look at their portfolios from the amount of money invested in each stock or ETF, not the number of shares invested across different companies."
If you're an investor with fractional shares, focus on the amount of money invested in each company and how diversified the companies are. The risk isn't having more shares of one company versus another company, Driscoll said, but having too high of a percentage of a portfolio invested in one company or one sector of the market.
Purchasing index funds and/or ETFs that track the broader market like the S&P 500 can help diversify your holdings and protect against risk. Many of the best brokerage platforms and investing apps allow you to purchase fractional shares of these types of funds.
When choosing an investment platform to purchase fractional shares through, Driscoll recommends one that doesn't charge a fee for each trade placed. Platforms' trading costs or tax implications can hurt overall returns when buying or selling partial shares, he explains.
And, as with any major investment decision, consider speaking with a financial advisor first.
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Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Kevin Driscoll, vice president of advisory services at Navy Federal Investment Services.
