What is: Fractional Share

What is Fractional Share

Fractional share investing allows investors to purchase a portion of a single share of a company’s stock, rather than having to buy a whole share. This can be particularly beneficial for those who may not have the funds to purchase a full share or who want to diversify their portfolio without committing a large amount of capital.

How Fractional Shares Work

When an investor buys a fractional share, they are essentially buying a piece of a share that is owned by a brokerage firm. The brokerage holds the full share on behalf of multiple investors who own fractional shares. This allows investors to own a stake in a company without having to buy a whole share.

Benefits of Fractional Share Investing

One of the main benefits of fractional share investing is that it allows investors to diversify their portfolio with smaller amounts of money. This can help reduce risk and potentially increase returns over time. Additionally, fractional share investing can make it easier for investors to invest in high-priced stocks that they may not be able to afford otherwise.

Drawbacks of Fractional Share Investing

While fractional share investing can offer many benefits, there are also some drawbacks to consider. For example, some brokerage firms may charge fees for buying and selling fractional shares. Additionally, investors may not have the same voting rights as shareholders who own whole shares.

How to Buy Fractional Shares

To buy fractional shares, investors can use online brokerage platforms that offer this service. These platforms allow investors to purchase fractional shares of individual stocks or exchange-traded funds (ETFs) with ease. Investors can specify the dollar amount they want to invest, and the platform will automatically calculate the corresponding fractional share amount.

Popular Platforms for Fractional Share Investing

Some popular brokerage platforms that offer fractional share investing include Robinhood, Charles Schwab, and Fidelity. These platforms make it easy for investors to buy and sell fractional shares of their favorite companies without having to purchase a whole share.

Conclusion

Fractional share investing can be a valuable tool for investors looking to diversify their portfolio and invest in high-priced stocks with smaller amounts of capital. By understanding how fractional shares work and the benefits and drawbacks of this investment strategy, investors can make informed decisions about incorporating fractional shares into their investment strategy.