Fractional Investing: How you can Afford Expensive Stocks
October 13, 2020
By Rahul Iyer
Some of the prime stocks on the market are trading at upwards of $1,000. This can be intimidating to someone who is just starting out in the stock market or who does not want to put too many of their eggs in a single basket. Brokerage firms have realized this dilemma and are now offering what is referred to as fractional shares.
The solution to securing expensive stocks that present a huge investment opportunity is to buy fractional shares. As the name suggests, a fractional share is a portion of a particular stock.
Fractional Shares Explained
This form of investing is straightforward. Instead of having to fork out hundreds or thousands of dollars for stocks, you can pay only a fraction of the price and secure a portion of the share. This means that if a stock costs $80, and you only have $20, you could buy into 25% of the share and still benefit from the stock’s performance. With fractional investing, you do not have to wait until you have all the money to invest.
Benefits of Fractional Investing
One of the primary benefits of fractional investing is that it makes it easy for people to get involved in investing. With fractional investing, you can easily purchase a stock without having all the money for a particular share. This gives you the opportunity to tap into investment earnings from early instead of waiting months to have enough money to purchase shares.
Fractional Investing makes it possible for you to secure shares in companies that you would otherwise not be able to afford. Not everybody can afford to buy the highest-priced stocks on the market. This form of investing gives you the opportunity to secure a small piece of the pie.
This form of investing makes it possible for you to have more diversity in your portfolio. Instead of only buying 4 shares for a total of $2,000, you could buy fractions of many other promising businesses. This helps to reduce your risk and increase the likelihood of your portfolio going up in value.
How to Buy Fractional Shares
There are a number of online investing platforms and brokerage firms that give investors the opportunity to buy fractional shares. Each entity has its own rules and restrictions so be sure to familiarize yourself with them. Some firms that will permit you to buy fractional shares are Betterment, Fidelity, Interactive Brokers, M1 Finance, Robinhood, Schwab, and Stockpile
The Bottom Line
Whatever your income level might be, fractional investing makes it possible for you to begin to build your investment portfolio. Do not be discouraged by the small amount that you are investing, celebrate the fact that you are able to start.