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Fractional shares allow you to own part of a big-name stock without the large price tag
Fractional share investing allows you to own a portion of one share of a company.
Buying into big shot companies like Amazon and Google comes at a high cost. With a single share price over $2,000 as of this writing, it may seem that investing in these companies is reserved for wealthier individuals.
The good news, however, is that you can still get in on these pricey stocks without having thousands of dollars. Many investment platforms these days offer the opportunity to purchase partial shares of stocks, which is also known as fractional share investing.
In short, purchasing a fractional share means you're buying a portion of a single share instead of one whole share of a company. Not only do fractional shares allow you to get in on big-name brands without committing to a whole share, but holding onto these established brands for the long run can certainly pay off.
"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 tells Select. In other words, investors can purchase stocks based on how much they want to spend: They can buy specific dollar amounts of stocks or exchange-traded funds (also called EFTs) and the trading platform then calculates what combination of full and/or partial shares are needed to execute the trade, Driscoll explains.
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Are fractional shares right for you?
Although every individual's financial situation is different, Driscoll suggests that fractional share investing is generally good for everyone.
Fractional shares give those just starting out with a limited budget access to the market, plus they allow you to invest a specific dollar amount on a regular basis and help to diversify your portfolio with a wider range of stocks or ETFs.
Charles Schwab, for example, lets investors purchase a fractional share of any stock listed in the S&P 500 through its Schwab Stock Slices™ program, allowing you to buy a single slice (fractional share) or up to 30 slices (30 fractional shares) for as little as $5 per slice. Fractional shares at Schwab are traded commission-free online, similar to regular stocks.
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 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
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
Stocks, bonds, mutual funds, CDs and ETFs
Extensive retirement planning tools
SoFi Invest® is another broker option that offers fractional shares with zero trading commissions. Investors can start with just $5 and access more than 4,000 stocks and ETFs.
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. $10 minimum to trade crypto
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
Download the SoFi app and get up to $1,000 when you open an Active SoFi Invest® Brokerage Account. Make your first crypto trade of $10 or more and earn $10 in bitcoin. SoFi covers up to $75 of any transfer fees your brokerage may charge when you transfer an account to SoFi
Robo-advisor: SoFi Automated Investing IRA: SoFi Traditional, Roth, SEP and Rollover IRAs Brokerage and trading: SoFi Active Investing
Stocks, bonds, ETFs, crypto, fractional shares and IPO participation
Investors can create a personal watchlist that follows their stocks to stay up to date and receive the latest investing news
What to look out for when buying fractional shares
The idea of getting in on a hot stock like Amazon may be thrilling, but, as always, investors should keep other factors — their investing goals, time horizon, risk tolerance and risk capacity — in mind before buying fractional shares.
"First identifying how much money to invest with personal goals in mind will allow everyone to diversify an investment of $100 or $10,000 by purchasing household company names that are familiar to everyone," says Driscoll.
There is 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 is not so much having more shares of one company versus another company, 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 (i.e. the S&P 500) can help diversify your holdings and protect against risk — many of the top brokerages 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 looking for one that doesn't charge a fee for each trade placed. Platforms' trading costs or tax implications can have an adverse effect on overall returns when buying or selling partial shares, he explains.
And, as with any major investment decision or strategy, we recommend speaking with a financial advisor to help guide you.
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