Buzz
Imagine you have a limited amount to invest—perhaps just a few hundred dollars—and you're interested in buying stock from major companies like Amazon or Google. However, the price of a single share from these companies can reach into the thousands. This is where fractional shares come in: they let you buy a small portion of a company's stock for a fraction of the full price.
What Are Fractional Shares?
Fractional shares are simple: any portion of a publicly-traded company or ETF that is less than a whole share is classified as a fractional share. You’ll need to go through a broker to buy them, and there might be extra fees involved for the service (Bankrate has a helpful list of recommended brokers here). Fractional shares are perfect if you're interested in a company's fundamentals but can't afford a full share. Take Warren Buffet's Berkshire Hathaway as an example—few people can buy a single share, which is currently valued at $430,000.
The benefits of investing in fractional shares
Better access to top-performing stocks: Fractional shares provide an opportunity to invest in high-demand stocks that have demonstrated steady success over time.
An affordable way to diversify your investment portfolio: Fractional shares offer more flexibility in diversifying your stock holdings, even with limited funds. They also let you tailor your investments, whether you want to focus on tech companies or adjust your risk levels.
Easy to invest exact amounts of money: For investors who want to allocate a set amount of money each month, fractional shares make this easier since you're not restricted by the full price of the stocks you're purchasing.
The drawbacks of investing in fractional shares
Limited stock options: While fractional shares allow access to more stocks, many brokerages impose restrictions on which companies you can invest in. These limits vary based on the brokerage you choose.
Harder to sell: Fractional shares are more challenging to sell compared to full shares, and transferring them to other brokerages is often not possible.
Potential for excessive trading: Investing in fractional shares might tempt you into frequent, short-term trading based on individual stocks, which is a riskier strategy than passive investing.
Transaction fees can accumulate: As fractional shares encourage more frequent trading with smaller amounts, the transaction fees can add up, leading to a higher percentage of fees on each trade.
