What are Fractional Shares?
Investing in stocks has always been considered a lucrative way to grow your wealth. But not everyone has the financial capacity to buy a full share of a company’s stock. This is where fractional shares come into play. Fractional shares, also known as “micro-investing,” are portions of a share of a company’s stock that you can buy or sell through a brokerage firm. These fractional shares allow investors to own a small piece of a company’s stock without having to buy the whole share.
How Do Fractional Shares Work?
When you purchase fractional shares, your investment is divided into smaller amounts that are equivalent to a fraction of a share. For example, if you invest $100 in a stock that is trading at $200 per share, you would receive 0.5 shares of that stock. The value of your investment would be based on the current market price of the stock multiplied by the number of fractional shares you own.
Where Can You Buy Fractional Shares?
Fractional shares can be purchased through online brokerage firms that offer this service. Some of the popular brokerage firms that offer fractional shares include Robinhood, Charles Schwab, and Fidelity. These firms allow investors to buy fractional shares of individual stocks or exchange-traded funds (ETFs).
What are the Benefits of Fractional Shares?
There are several benefits to investing in fractional shares. First, it allows investors to diversify their portfolio without having to buy a full share of multiple stocks. Second, it enables investors to invest in high-priced stocks that they may not have been able to afford otherwise. Third, fractional shares make it easier for investors to invest small amounts of money regularly, which can add up over time.
What are the Drawbacks of Fractional Shares?
While fractional shares have their benefits, there are also some drawbacks to consider. One of the main drawbacks is that fractional shares are not always available for every stock. Additionally, some brokerage firms charge fees for buying and selling fractional shares, which can eat into your profits.
How to Invest in Fractional Shares?
Investing in fractional shares is relatively simple. Here’s how you can get started:
Step 1: Open a Brokerage Account
To invest in fractional shares, you’ll need to open a brokerage account with a firm that offers this service. Some popular brokerage firms that offer fractional shares include Robinhood, Charles Schwab, and Fidelity.
Step 2: Fund Your Account
Once you’ve opened your brokerage account, you’ll need to fund it with money. You can do this through a bank transfer or by linking a debit or credit card to your account.
Step 3: Choose the Stock or ETF You Want to Invest In
After funding your account, you can start investing in fractional shares. Choose the stock or ETF you want to invest in and decide how much you want to invest.
Step 4: Place Your Order
Once you’ve decided on the stock or ETF and the amount you want to invest, you can place your order through your brokerage firm’s website or mobile app.
Step 5: Monitor Your Investment
After you’ve invested in fractional shares, it’s important to monitor your investment regularly. Keep track of the stock’s performance and make changes to your investment strategy as needed.
Conclusion
Fractional shares are a great way to invest in the stock market, even if you don’t have a lot of money to invest. By buying small portions of a company’s stock, you can diversify your portfolio, invest in high-priced stocks, and invest small amounts of money regularly. While there are some drawbacks to fractional shares, the benefits far outweigh them. So, if you’re interested in investing in the stock market, consider investing in fractional shares through a brokerage firm that offers this service.
