Financial basis

What are they and are they right for you?

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Buying from big companies like Amazon and Google comes at a high cost. With a single stock price over $2,000 at the time of this writing, it might seem like investing in these companies is only for the wealthiest people.

The good news, however, is that you can still access those expensive stocks without having thousands of dollars. Many investment platforms nowadays offer the option of buying partial shares, which is also known as fractional stock investing.

In short, buying a fractional stock means that you are buying a part of a single stock instead of a whole stock of a company. Not only do fractional shares allow you access to big brands without committing to a full stake, but keeping those established brands for the long term can certainly pay off.

“Split stock investing is a trading function that has brought Wall Street closer to Main Street,” Kevin Driscoll, vice president of advisory services at Navy Federal Investment Services, told Select. In other words, investors can buy stocks based on how much they want to spend: they can buy specific dollar amounts of stocks or exchange-traded funds (also known as EFTs) and the trading platform calculates then what combination of full and/or partial actions are needed to execute the trade, Driscoll explains.

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Are fractional shares right for you?

Although each individual’s financial situation is different, Driscoll suggests that fractional stock investing is generally good for everyone.

Fractional shares give those starting out on a budget access to the market, plus they allow you to invest a specific dollar amount on a regular basis and help you diversify your portfolio with a wider range of stocks or ETFs.

Charles Schwab, for example, allows investors to buy a fractional share of any stock listed on the S&P 500 through its Schwab Stock Slices™ program, allowing you to buy a single slice (fraction of share) or up to 30 slices (30 fractional shares) for as little as $5 per slice. Fractions of shares of Schwab are traded online without commission, like ordinary shares.

Charles Schwab

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing via Schwab One® Brokerage account. Automated investing with Schwab smart portfolios® requires a minimum deposit of $5,000

  • Costs

    Fees may vary depending on the investment vehicle selected. Schwab a® The brokerage account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for 4,000+ mutual funds, and $0.65 fees by option contract

  • Prime

  • Investment vehicles

    Robo-advisor: Schwab Smart Wallets® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Legacy and Custodial IRAs; plus, a Personal Choice Retirement Account® (ECRP) Brokerage and negotiation: Schwab a® Brokerage account, brokerage account + specialized platforms and support for trading, Schwab Global Account™ and Schwab Organization Account

  • Investment opportunities

    Stocks, bonds, mutual funds, CDs and ETFs

  • Educational resources

    Complete retirement planning tools

SoFi Invest® is another brokerage option that offers fractional shares without any trading commission. Investors can start with just $5 and access over 4,000 stocks and ETFs.

SoFi Invest®

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. No account minimum for active or automated investments, or to participate in IPOs. $5 minimum to own a fractional share of a company. $10 minimum to trade cryptos

  • Costs

    Fees may vary depending on the investment vehicle selected. Active investing has no commission fees for trading stocks and ETFs (stock exchange and fund management fees may apply). Automated investing has no management fees

  • Prime

    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 bitcoins. SoFi covers up to $75 of any transfer fees your brokerage may charge when you transfer an account to SoFi

  • Investment vehicles

  • Investment opportunities

    Stocks, bonds, ETFs, crypto, fractional shares and IPO participation

  • Educational resources

    Investors can create a personal watchlist that tracks their stocks to stay up to date and receive the latest investing news

What to pay attention to when buying fractional shares

The idea of ​​entering a hot stock like Amazon can be exciting, but, as always, investors should keep other factors in mind – their investment objectives, time horizon, risk tolerance and risk capacity – before buying fractional shares.

“First, identifying how much money to invest with personal goals in mind will allow everyone to diversify a $100 or $10,000 investment by buying family business names that are familiar to everyone,” explains Driscoll.

There is no limit to the number of fractional shares an investor can buy in different companies. Generally speaking, however, Driscoll says, “Investors should look at their portfolios based on the amount of money invested in each stock or ETF, not the number of stocks invested in different companies.”

If you are a fractional stock investor, focus on the amount of money invested in each company and the diversification of companies. The risk is not so much having more shares of one company than another company, but having too high a percentage of a portfolio invested in one company or market sector. Buying 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 major trading houses brokerage and investment apps allow you to buy fractional shares of these types of funds.

When choosing an investment platform for buying fractional shares, Driscoll recommends looking for one that doesn’t charge a fee for every trade you make. The trading costs or tax implications of the platforms can have a negative 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 guide you.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.