Money Analysed

Unlocking the Power of Fractional Shares: Affordable and Diversified Investing

Introduction to Fractional Shares

Investing in the stock market can be an intimidating task, especially for beginners who do not have a lot of money to invest. However, with fractional shares, anyone can own a piece of a company without breaking the bank.

In this article, we will define what fractional shares are, compare traditional and online brokers, and discuss the advantages of investing in fractional shares. What are Fractional Shares?

A fractional share is a portion of a full share of stock. For example, if a company’s share price is $100, and you only have $50 to invest, you can buy 0.5 fractional shares.

Fractional shares allow individuals to buy a piece of a company at a fraction of the cost of a full share. Traditional vs.

Online Brokers

Traditional brokers have been around for decades, and they offer a wide range of investment services, including stock purchases. However, traditional brokers usually require a high minimum investment and charge high commissions for each trade.

In contrast, online brokers offer commission-free trades and lower account minimums. They also provide various investments, including fractional shares.

Advantages of Fractional Shares

1. Diversification: With fractional shares, you can diversify your portfolio easily.

Instead of investing all your money in one company, you can invest small amounts in multiple companies, reducing the risk of losing all your money in one stock. 2.

Affordability: Buying a full share of stock in a well-established company can be expensive. Fractional shares allow you to invest in expensive stocks without having to spend a lot of money.

3. Dividend Reinvestment: Many companies offer dividends to their stockholders.

With fractional shares, you can reinvest your dividends, buying more fractional shares and increasing your overall investment in the company.

Buying Fractional Shares

Several platforms offer fractional share trading, including Stash, Robinhood, Public, M1 Finance, and Betterment. Each platform has its unique features and limitations.

Stash is a social investing app that allows you to invest in fractional shares and offers a variety of ETFs. It has an account minimum of $0 and charges $1 per month for account balances under $5,000. Robinhood is a commission-free trading platform that specializes in fractional shares.

It also has an account minimum of $0 and does not charge for trades. Public is another social investing app that allows investors to buy fractional shares of stocks and ETFs. It has no account minimums and charges no commissions for trades.

M1 Finance allows you to invest in fractional shares and create custom-made portfolios. It also offers tax-saving strategies and has no trading fees or account minimums.

Betterment is a platform that offers fractional shares and provides automated investing services. It also offers socially responsible investing options and charges a 0.25% management fee.

FAQs about Fractional Trading

1. What happens to the dividends if I own fractional shares?

The dividends are paid out pro-rata based on the number of fractional shares you own. 2.

Can I invest in companies like Amazon with fractional shares? Yes, you can invest in popular companies such as Amazon, Google, and Apple with fractional shares.

3. Can I make money with fractional shares?

Yes, you can make money with fractional shares, just like you can with full shares. Fractional shares allow you to invest in more companies, diversifying your investments and reducing the risk of losing money.

4. Is there a higher risk when investing in fractional shares compared to full shares?

No, the risk is the same for fractional and full shares. However, by investing in more companies, you can minimize the risk by diversifying your portfolio.

Conclusion

Investing in fractional shares has become increasingly popular over the years, allowing small investors to purchase and own pieces of companies at affordable prices. Online trading platforms have made it easier to invest in fractional shares by offering fee-free trades and low account minimums.

With fractional shares, investors can diversify their portfolios, reinvest dividends, and potentially make money all without having to spend thousands of dollars on a single share of stock.

Benefits and Applications of Fractional Shares

Fractional shares offer investors a way to invest in the stock market without the high minimum investment requirements associated with traditional brokers. Whether you are a beginner investor looking to test the waters or an experienced investor looking to diversify your portfolio, fractional shares have several benefits and applications.

Beginner-Friendly Investment Option

Fractional shares are an excellent option for beginner investors who have limited knowledge of the stock market and are hesitant to invest a large sum of money. Fractional shares allow investors to start with small amounts of money, learn about the stock market, and gradually increase their investments as they gain more knowledge and confidence.

Diversification and Portfolio Management

Investing in a single company can be risky, as the value of its stock can fluctuate significantly. Fractional shares allow investors to safely branch out and test different investments without risking significant amounts of money.

With fractional shares, investors can build a portfolio made up of shares in multiple companies, reducing the risk of losing all of their investment in a single stock.

Affordability and Accessibility

Buying a full share in a well-established company can be expensive, with some stocks costing hundreds or even thousands of dollars per share. Fractional shares allow investors to invest in high-priced stocks and build a diversified portfolio with a lower investment requirement.

With the advent of online trading platforms, fractional shares have become more accessible to the wider public, with several platforms offering commission-free trades and low account minimums.

Investment Strategy and Dividend Reinvestment

Fractional shares offer investment opportunities beyond just diversification and affordability. Investors can use fractional shares to execute specific investment strategies, such as rebalancing their investments as the market conditions change or creating a dividend reinvestment plan.

Rebalancing your investments involves readjusting the percentage allocation of each stock in your portfolio to keep it aligned with your investment strategy. Fractional shares allow you to rebalance your portfolio without having to buy or sell entire shares.

Additionally, with fractional shares, investors can create a dividend reinvestment plan, where the dividends earned from the shares are automatically reinvested to purchase more fractional shares.

Conclusion

In conclusion, fractional shares are a great investment option for beginner investors and experienced investors alike. The benefits of diversification, affordability, accessibility, and investment strategy all make fractional shares a worthy investment option.

However, it is essential to note that investing always comes with some level of risk, and it is crucial to do your own research and not solely rely on general advice. It’s always a good idea to seek personalized advice from a financial advisor before making an investment decision.

Investing in fractional shares can be an exciting and financially rewarding experience, as long as you approach it with a sensible and well-informed strategy. Overall, fractional shares offer several benefits and applications for investors, including diversification, affordability, accessibility, and investment strategy.

They are an excellent option for beginner investors who are hesitant to commit a lot of money and for experienced investors looking to safely branch out. Investors can use fractional shares to create a diversified portfolio, execute specific investment strategies, and reinvest dividends automatically.

However, investing always involves some level of risk, and it is essential to seek personalized advice from a financial advisor before making any significant investment decisions. Ultimately, fractional shares have made investing more accessible to a wider audience, providing an opportunity for anyone to invest in the stock market.

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