Introduction
Investing in stocks is one of the best ways to build wealth and grow your money. However, not everyone can afford to buy a whole share. In the past, this would make it difficult for beginners to invest, but fractional shares have changed the game. In this beginner’s handbook, we will explain everything you need to know about buying fractional shares.
What are Fractional Shares?
A fractional share is a portion of a whole share. It allows investors to buy a portion of a share instead of the whole thing. For example, if a share of Apple costs $500, and you can only afford $50, you can buy 1/10th of a share. This way, you still invest in Apple and have a chance at seeing gains on your investment.
The Benefits of Fractional Shares
There are many benefits to investing in fractional shares, including:
Access to High-Priced Stocks
Some stocks cost hundreds or even thousands of dollars per share. Fractional shares allow investors to access these high-priced stocks without need to purchase a full share.
Cost Management
Fractional shares allow investors to manage their costs by investing only the amount they are able to afford.
Diversification
Investors can diversify their portfolio more effectively by buying fractional shares. They can buy portions of many different stocks instead of just a few full shares.
Flexibility
Fractional shares also give investors more flexibility in their investing strategy. They can buy and sell small portions of shares when needed, rather than having to buy or sell whole shares.
How to Buy Fractional Shares
Buying fractional shares is a simple process that requires a few steps:
Choose a Stock Broker
The first step is to choose a stock broker. There are many online brokerage firms that offer fractional share investing, including Robinhood, Acorns, and Stockpile.
Open an Account
Once you have chosen a broker, the next step is to open an account. This typically involves providing personal information and linking a bank account.
Choose a Stock
After your account is set up, you can choose a stock to invest in. Select a stock that you are interested in and that fits your investing strategy.
Buy Fractional Shares
Once you have chosen a stock, it is time to buy fractional shares. Determine how much money you want to invest in the stock, and then buy the fraction of shares you can afford.
Frequently Asked Questions about Fractional Shares
1. What is the minimum amount needed to invest in fractional shares?
The minimum amount needed varies by brokerage firm. For example, Robinhood has no minimum amount to invest, while other firms may require a minimum of $5 or $10.
2. Are fractional shares more expensive than whole shares?
No, fractional shares are priced in proportion to the whole share. For example, if a whole share costs $100, and you buy 1/10th of a share, your cost will be $10.
3. Can I sell fractional shares?
Yes, you can sell fractional shares just like whole shares.
4. Can I own more than one fractional share of a stock?
Yes, you can own multiple fractional shares of a stock.
5. Do all brokerage firms offer fractional shares?
No, not all brokerage firms offer fractional shares. It is important to research different brokerage firms to determine which ones offer this type of investing.
6. Do fractional shares pay dividends?
Yes, fractional shares pay dividends in proportion to the fraction of the share owned.
7. Is it safe to invest in fractional shares?
Fractional shares are safe to invest in, but as with any investment, there is always a risk. It is important to do your own research and invest in stocks you are comfortable with.
8. Are there any fees associated with buying fractional shares?
Some brokerage firms charge a fee for buying or selling fractional shares. It is important to read the terms and conditions of your brokerage account to determine if there are any fees.
9. How long does it take to buy or sell fractional shares?
Buying or selling fractional shares typically occurs instantly or within a few minutes, depending on the brokerage firm.
10. Can I buy fractional shares of any stock?
No, not all stocks are available for fractional investing. It depends on which stocks the brokerage firm has made available.
Conclusion
Fractional shares have provided a new way for investors to enter the stock market without requiring a large lump sum investment. With fractional shares, investors have more flexibility, cost management and diversification opportunities that weren’t available previously. If you are interested in investing, fractional shares are definitely worth considering.
