Not every investor can afford the high price of some of the hottest stocks in the market. For example, if you want to buy a share in a popular and profitable company like Tesla, Apple, or Google, you’ll have to invest hundreds of dollars for a single share. So how can you invest in expensive stocks or diversify your portfolio with a small investment budget? Fractional shares are the solution for many small-budget and novice investors.
What Are Fractional Shares?
As the name suggests, fractional shares are an investment type that allows you to buy a fraction of a share. This means you don’t have to pay the full price for an expensive share, and you can invest in a fraction of that share instead with less money.
Such shares are only possible after stock splits from actions taken by the companies. For example, dividend reinvestment plans or DRIPs result in stock splits, allowing fractions of the stock to be purchased. However, many online brokerage firms offer fractional shares to their investors. They buy whole shares and then allow their investors or customers to buy a percentage or fraction of those shares.
This expands their customer base because now they can facilitate smaller investors who may not have enough to buy a full share. Small-budget investors get the opportunity to invest in out-of-reach stocks that are primed for growth.
Some online investment platforms sell fractional shares as small as a millionth of a share. This means their customers can buy a fractional share of an expensive stock for as little as $1. Other platforms offer the same feature but may rename fractional shares and call it something like micro-investing. They allow you to invest as little as $5 in a portfolio of your choice, which usually has multiple fractional shares of prime stocks.
The key benefits of fractional stocks are that they allow you to invest in well-known expensive stocks with little money upfront, and they make it very easy for small-budget investors to diversify their investment portfolio. You can start with as little as $500 and create an investment portfolio that is primed for growth and diversified for safety. However, there are some downsides with fractional shares as well. For example, brokerage firms and investment platforms typically charge more fees and commissions for fractional shares. You should always look for commission-free options with low trading fees. Another issue with fractional shares is that they are not easily available everywhere because not every firm or platform offers this type of investment opportunity. So, how can you buy fractional shares?
Now that you know more about fractional shares, we explore how to buy them. These are some popular brokerage firms and platforms that offer fractional shares and make it very easy for anyone to buy, sell, or trade such shares.
Acorns
Acorns round up your purchases and save the change to invest for you. They can start you up with a small amount of money to help you invest in fractional shares. There is no minimum account balance to start, but your savings or round-ups must be at least $5 before you start to invest. Individual investment plans are also available on Acorns, starting from just $1 per month.
Stockpile
Another easy platform for fractional shares, Stockpile is focused on gifting fractional shares and stocks. There are thousands of stock options to choose from, and you can start investing with as little as $5. Customers can also opt to get their investment in gift cards for their loved ones.
Robinhood
Robinhood is perhaps the best and most popular platform for investing in fractional shares. You invest as little as $1 in thousands of stocks and make commission-free trades through their app. There is also no minimum account balance on Robinhood, which means you can start with as little money as you like.
Public
Another commission-free trading firm and platform, Public, has a useful mobile app and no minimum account requirements. With Public, you can start investing in fractional shares at just $5. Public also offers social learning opportunities for investing through like-minded individuals on their platform.
Final Thoughts
Fractional shares are the smart choice for any investor with limited investment funds or the desire to diversify their investment portfolio. Imagine how much you can diversify by buying hundreds of small pieces of various prime stocks rather than buying a few single stocks.
We recommend opting for one of the mentioned brokerage firms or platforms to start investing in fractional shares with no commission or minimum requirements. However, you should always do your own research and comparisons before choosing any stock or platform for investment.