Fractional share investing is a relatively new concept in the financial market that is changing how people invest. This concept has made it possible for a vast number of people to invest in the financial market. It has also made it possible to invest in a vast number of stocks that would otherwise be unaffordable to many people. In this article, we will look at what fractional share investing is, how to use it, and brokers that offer fractional investing and fractional share investment platforms.
You get recession, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets. – Peter Lynch
- 1 What is Fractional Share Investing?
- 2 What are the Benefits of Fractional Share Investing?
- 3 Which Brokers Accept Fractional Share Investing?
- 4 Which Brokers Don’t Accept Fractional Share Investing?
- 5 How to Invest in Fractional Shares
- 6 Frequently Asked Questions on Fractional Share Investing
- 7 Summary
The financial market is made of thousands of companies. There are more than 3,000 companies that are public in the United States. These companies have different share prices. There are small penny stocks that have a stock price of below $5. On the other hand, there are companies like Berkshire Hathaway, that have a stock price of more than $200,000 or Amazon, which has a stock price of almost $2,000.
Highly-expensive stocks bring new challenges. For example, even if you had $10,000, it is almost impossible to make a lot of money in the market because you can’t invest well in large companies like Amazon. If you decided to invest all of your $10k on Amazon, you would have 5 shares. As such, you would not make a lot of money even if the stock gained by 30%. It would be impossible to invest in a company like Berkshire Hathaway.
What is fractional share investing? This is simply an investment product that allows you to buy a fractional of a company’s stock. For example, you can invest in a fraction of Amazon stock with your $10,000. As such, instead of investing in a share, you invest in a smaller percentage.
How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
There are a number of fractional share investing. Here are some of those benefits.
- Access to stocks. It makes it possible for small investors to invest in large companies.
- Liquidity. Fractional share investing brings more people to the market. This is a good thing because it helps create more liquidity.
- More innovation. It helps to boost innovation because more people are in the market.
- Low capital. You can invest in fractional shares with as little as $100.
The stock brokerage industry has seen a lot of changes recently. A few months ago, all US brokerage companies increased their battle with Robinhood by removing all commissions on trades. This included companies like Charles Schwab and TD Ameritrade. This showed that innovation is increasing in the relatively competitive industry. Here are some of the most important brokers that accept fractional share investing.
- Robinhood – Robinhood is a free trading application app that has simplified how investors access the market. You can have an account with as little as $10.
- Stash – Stash is a startup that has raised more than $189 million from investors. The company allows you to invest in fractional shares.
- Charles Schwab – Charles Schwab is one of the biggest brokers in the US. The company has more than $3 trillion of assets. It recently started to offer fractional investments.
- Acorns – Acorns is a startup that has raised more than $207 million. The company allows passive investments and has been a pioneer in passive investments.
- M1 Finance – M1 Finance is a fast-growing company that helps people invest, borrow, and spend money. It was one of the first companies to offer fractional investing.
- Stockpile – Stockpile is a fintech company that has raised more than $45 million from investors. The company made its name by simplifying access to stocks.
Unfortunately, many brokers are still living in the past. They are not evolving as fast as they should. Indeed, many brokers started to offer free trades after Schwab entered the industry. As such, many brokers are still not offering fractional share investing. These include:
Investing in stocks has proven to be the best creator of wealth in the past decades. A person who invested $10,000 in the Dow Jones Industrial Average in the past 50 years is now a millionaire. The same is true with people who invested in companies like Facebook and Google a few years ago. The process of investing in fractional share is simply similar to how you handle other types of investments. You just need to invest in companies that meet the following qualities
- Companies that are relatively undervalued. You can read our guide on how to invest in stocks here.
- Companies that are growing.
- Companies that have sound leadership.
- Companies that you have a good understanding of the services and products they offer like Apple.
- Companies that have good cash flow and pay dividends.
Here are some of the most common questions on fractional investing answered:
- Do fractional shares pay dividends? Yes they do. However, the dividends will not be very much because you don’t own many shares.
- Can I start trading with $100? Yes. Many fractional shares investing platforms help you start investing with as little as $50.
- Can I buy fractional shares on Robinhood? Yes. Robinhood was one of the first companies to offer fractional share purchases.
- Can you buy fractional ETFs? Yes you can. You can also buy fractional indices and mutual funds.
- What is fractional property investing? It is similar to share purchases. It helps you own a small part of a real estate project.
Fractional share investing is changing the world. It is changing how investors allocate capital and how ordinary investors access the financial market. It is a thing you can try by using one of the brokers mentioned above. Always ensure that you have analysed stocks that you buy before you allocate money to them.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.