What are fractional shares? Here’s why you should purchase them

In this article

  • Buying stocks is easy but sometimes expensive because the per-share rate can be in hundreds of dollars. 
  • Fractional shares help in investing in stocks in a fraction – if you want to invest just $10 in a $100 share, you can.
  • These shares help you investing in stocks that you otherwise can’t afford and helps you build a diversified portfolio.

Trading in stocks is a risky road. More so when you are dumping all your savings without much knowledge or diversification. You may lose money instead of earning if your calculation goes wrong! Also, sometimes buying stock can be expensive, for example, Berkshire Hathaway, Amazon, Alphabet, etc. They trade in thousands of dollars per share. So, it’s not always possible for common people to buy such expensive stock. 

This is where Fractional shares play an important role, they can be found on various brokerages including Robinhood, Fidelity, Charles Schwab, SoFi Active Investing, Stash, etc. These shares are a more moderate means of investing in expensive stocks. These fractional shares let investors buy stocks as chosen dollar amounts instead of the price of the whole share. How does this help? Fractional shares enable you to invest even with limited capital but create a diversified portfolio.

Benefits of buying fractional shares

Helps you create a highly diversified portfolio

When it comes to investing in stocks, as we talked about above, the most popular shares also have skyrocketing prices. Creating a portfolio by investing in these shares could cost you your whole inheritance and wipe you clean off all the money.

Let’s take an example for a much clearer vision- Suppose you have $5,000 for investment and you decide to diversify your portfolio by investing in the sticks of different companies. Say 10%, so you will commit $500 worth of stocks in 10 companies. This will help you diversify your portfolio and also minimize the risk and uncertainties.

Harness the real potential of investment

A lot of people adopt the dollar-cost averaging strategy – investing a pre-decided amount every month to the investing account. Without fractional shares, the probability is really high that a certain amount may lay unused in your account. 

How to back that statement? Here is an explanation. Suppose you end up with $90 for investment but the stock you want to purchase is priced at $65, in that case, you will only be able to buy one whole share. Without a fractional share, you will have $25 uninvested funds in your account. Hence, it is always wise to invest in the star of the show that is fractional shares.

To enhance your affordability

Fractional shares have the eccentric quality of allowing you to buy any share which you couldn’t afford otherwise. For example, if you want to invest in Amazon’s stock, but it trades around $3,500, you check your funds and you can hardly come up with $1000. Now, this unfortunate situation will hinder you from buying even a single share or either force you to take up loans and burden you with debt, and that’s now how investing works!

This is not the case with fractional shares. You can easily invest in stocks worth $5, $50, or $5000 as you invest in a fraction of the share. 

Where fractional shares fall short?

Transferring assets is a hassle with fractional shares. Why? Whole shares can be transferred easily without the need for selling. In the case of fractional shares, you will have to go around the circle and sell any fractional shares in order to transfer the funds. You might also incur some additional charges in the form of tax implications, or fees. 

Many professionals advise investors that it is wise to hold the stock for the long term and grow wealth patiently. Greed and caprice have hardly ever brought favorable fortune in the stock market. And who knows, you might even double your investment if you seek long-term growth rather than focusing on short-term returns.

Conclusion

Having limited money but wanting to invest in different stocks? Fractional shares will give you the right opportunity. You no longer need to have thousands of dollars to invest in the financial market. With meticulous study and careful analysis, you can easily diversify your investments while making sure that no money sits idle. After all, it is about utilizing what you have in the best way you can!

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This page is purely informational. Line does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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