Have you seen the price of stocks these days? A single share of Amazon costs as much as several mortgage payments. Three shares of companies like Netflix, Tesla or Apple can eat up your entire investing budget. You can save your money until you have enough, and hope share prices don’t continue to shoot out of reach. Or, you can buy fractional shares with however much money you can afford to invest.
What are fractional shares?
Investing in fractional shares means buying partial shares of stocks based on your budget and not the stock price. If a stock is trading for $2,000 per share and you only have $50 to spare, no problem. Your $50 will buy you a fraction of that share of stock (2.5% in this example).
Besides making pricey stocks affordable, fractional shares make it easy to build a diversified portfolio right away.
With fractional shares you reap the same rewards as other shareholders — profiting from earnings, getting paid dividends — except your cut is in proportion to the amount of stock you own.
Besides making pricey stocks affordable, fractional shares make it easy to build a diversified portfolio right away. You can use your $50 to purchase a partial share in a single company, or spread the amount across several stocks to spread your risk around.
Don’t worry about the math: The brokerages that sell fractional shares calculate how much of a share of a stock you’ll get based on the dollar amount you wish to invest. Same goes when you want to trade out of a position. Just name the dollar amount you wish to sell, and the calculation takes place behind the scenes.
How to buy fractional shares
All you need are a couple of bucks and a brokerage account to get started.
Some things to note:
- If you’re starting with a small amount of money, you’ll want to choose a broker that has no account minimum.
- Also compare trading fees. You don’t want your dollars gobbled up by fees. (The ones we cite below are commission-free, except one).
- Look at the selection of stocks and ETFs that are available to buy in fractional shares. The selection can vary widely from broker to broker.
- Choose a broker that you can grow with. Switching brokerage is a bit more of a pain if you own fractional shares because you’ll probably have to sell your partial shares in order to transfer the money.
(Here’s more on what to look for in a brokerage account.)
Dollar-based trades are similar to regular trades, except that the order might not be executed right away. Some brokers only pull the trigger on fractional share trades once a day. The price of the stock can change dramatically between the time you place your order and when the trade goes through. Because of that, time-sensitive trades are not encouraged if you’re buying and selling fractional shares.
Where to buy fractional shares
The following brokers allow investors to buy fractional shares of stocks. None of them have account minimums, all but one charges $0 in trading commissions, and some sell fractional shares of exchange-traded funds (ETFs) in addition to stocks.
Charles Schwab: Schwab recently launched a fractional share investing program called Schwab Stock Slices. There is no account balance minimum requirement, and trades are completely free. However, you must invest at least $5 to buy Stock Slices. (And you can buy slices in up to 10 different companies at a time.) The lineup of available companies is limited to those listed in the S&P 500 stock index, which is still plenty of choice for most investors.
Fidelity: Fidelity offers fractional share investors one of the most robust selections of stocks and ETFs. Almost any company and ETF listed on the major stock exchanges — that’s more than 7,000, including ones trading on the NYSE and Nasdaq — is available via Fidelity’s Stocks by the Slice program. And you can buy in for as little as $1. (The firm has a $0 account minimum.) There is no dollar maximum per order. Fidelity’s fractional share trading is available through the brokerage’s mobile app.
Interactive Brokers: Sophisticated traders know Interactive Brokers for its whiz-bang trading tools, research and rock-bottom commissions for high-volume traders. The company also serves the other end of the spectrum with Interactive Broker Lite (no account minimum, no fees, no commissions). Through this service investors can buy fractional shares in almost all U.S. stocks (including penny stocks that meet IB’s criteria) with a trade minimum of at least $1 or 0.0001 share.
Robinhood: This investing app kicked off the industry shift towards commission-free trading. Now Robinhood also supports fractional share investing (also commission-free). The brokerage’s minimum purchase is just $1. The selection is limited to stocks and ETFs that trade for more than $1 per share. A company must also be worth more than $25 million. The biggest limitation with Robinhood is that it does not offer IRAs, joint accounts or custodial accounts.
SoFi Active Investing: SoFi Active Investing is one arm of the larger financial firm, which includes a roboadvisor and a cash management account. SoFi’s fractional share investing program — Stock Bits — has one of the more limited offerings compared to its peers. You can buy bits of roughly 40 individual stocks and ETFs. Like Fidelity and Robinhood, all you need is $1 to get started.
Stash: Stash is known for offering investors a curated selection of ETFs chosen by its financial pros. Through the company’s mobile app, you can also buy fractional shares of a limited number of stocks and ETFs with any dollar amount. Investors can screen companies to buy based on categories or thematically (like “missions and causes” or consumer staples). Based on your risk preferences, the company’s Portfolio Builder can help you create a portfolio with a mix of investments. There are three flat-fee subscription plans for $1, $3 or $9 a month. That might not sound like much, but even paying $1 a month comes to a steep 2% management fee on a $50 portfolio. As we’ve written before, investment fees can kill your returns, especially when investing small amounts of money. So keep an eye on what you’re paying relative to your portfolio balance.
Stockpile: We’ve talked about using Stockpile to give the gift of stocks to children. It also allows investors to buy fractional shares of more than 1,000 stocks and ETFs. Just $5 will get you started. While there are no account minimums or monthly fees, note that Stockpile is the only broker on this list that charges a trading fee (99 cents).
The bottom line
Don’t let the price of stocks keep you on the investing sidelines. Buying fractional shares of stocks and ETFs is a great way to ease into the market. It allows you to build up multiple positions methodically over time. That’s a good investing strategy, even if you can afford to purchase the priciest shares at once.
More on HerMoney.com:
- 10 Investing Questions Answered in Plain English
- This May Be the Only Mutual Fund You Need To Own
- 5 Ways to Buy Stocks for Kids
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