Nowadays, you don’t need a lot of cash to start investing. One approach to entering the market when you have limited funds is to buy odd shares instead of buying the full stock of a company.
Buying less than a full share allows you to enter the market with a smaller budget and invest on your terms. And using these types of purchases can be a way to diversify a portfolio without spending a lot of money.
What are fractional shares?
Fractional shares are less than the entire shares of a company. Buying a fraction of a stock is more Reasonable way to invest and can be useful in Diversify your portfolio. Building portfolios with fractional stocks allows investors to invest in companies based on the amount they have available—rather than having to focus on buying a specific number of entire shares.
“Special shares are a recent development in the investment industry in which you can buy a portion of shares in certain companies, thus allowing investors with smaller amounts of money to still be able to buy shares. invest in companies they can’t if the stock price is too high,” said Scott Sturgeon, certified financial planner, founder, and senior wealth advisor at Oread’s Wealthy Partner, a fee-only wealth management and financial advisory firm. “It’s like going to buy a pizza—except that instead of buying the whole pie, you just buy a slice.”
Example: If a stock is trading at $100, but you only want to buy $25 worth, you can absolutely do so. “And the result is you now own 25% of that stock,” said Jon Klaff, general manager of Magnifi. “Section shares can help you get started with almost any amount of money.”
How do you buy fractional shares?
Buying a fractional stock is a simple process. The first step is open an investment account, and in doing so, make sure that the platform allows for the purchase of odd shares. Many online brokerage platforms support proportional buying of shares, as well as exchange-traded funds (ETFs) and even mutual funds.
After determining the right investment platform for your needs, the next step is to deposit funds into the account, which will eventually be used to make a purchase. It’s also important to spend time researching stocks and identifying those that align with your financial goals and risk tolerance.
“Once you know what you want to invest in, buying a fraction of a stock on an investment platform is as easy as converting units or shares to dollars, entering how much you want to spend. , then check out like any other online payment,” says Klaff.
Pros and cons of fractional shares
Like any form of investment, there are pros and cons to consider when buying odd stocks. Here are some factors to keep in mind if you’re thinking of buying odd stocks.
Pro: Lower Barrier to Getting Started
One of the biggest benefits associated with proportional stock investing is that buying stocks this way makes investing so much more accessible. “Segment stocks lower the barrier to entry for first-time investors,” explains Sturgeon. “If someone in their teens or early 20s can get excited about investing by owning brands or companies that they like, that can have a really positive impact in the long run. , making them focus on saving and investing more over time.”
Pro: Expensive Stock Access
Along with lowering the bar for investing in general, fractional shares allow for the purchase of premium stocks that some buyers may not be available to. With some stocks trading in the thousands of dollars per share, fractional shares can provide a way to own a piece of a premium asset.
Pros: More flexible
The advantage of investing in odd shares is that it allows you to invest on your terms. “Section stocks can help you personalize your portfolio,” says Klaff. “They give you more flexibility in your investments, so you can choose exactly how much you want to buy and invest in a way that works for you.”
Child: Transferunavailable
Unfortunately, fractional shares are not transferable. That means if you decide to switch from one brokerage firm to another or from one robot advisor to another, the fractional stock investments you have made will not currently be able to accompany you. This can be a significant drawback that you will want to consider carefully.
“In the event that you cannot transfer the fractional shares between brokers, you may have to sell it,” says Sturgeon. It is important to understand that when you switch brokers, you may be subject to a tax event because you are forced to sell the stock.
Child: Not available everywhere
Not all investment platforms or brokerages support proportional share purchases. You may have to search around to find a platform that offers this type of investment. Also, not all stocks can be purchased on a fractional basis.
Carried away
When you’re just start investing, Fractional stocks can provide a budget-friendly way to enter the market. Buying assets this way gives access to a portion of expensive stocks and allows for diversification of your portfolio without incurring significant costs. But if you’re considering fractional stocks, make sure you choose an investment platform that allows them to be purchased.
