What You Need to Know About Fractional Share Stocks
With just a few dollars, you can get a piece of some of Wall Street’s hottest stocks—as long as you know how.
Wouldn’t it be nice to have a stock portfolio fat with heavy hitters like Netflix, Apple, Disney, and Tesla? Watching people who bought big names early reap huge returns can fuel a little financial envy or encourage us to go running to the nearest laptop to start e-trading.
Investing in the market can be an important part of an overall financial strategy—if and when you’re ready and have your other financial ducks in a row (ahem, emergency fund and retirement savings). But it’s not something you should dive into without guidance from a fiduciary financial planner who can help you prioritize your spending, investing and best meet your unique financial goals.
That said, is there a way to capture some of the benefits, energy, and, to be honest, plain excitement and fun of investing in big-deal and super-expensive stocks like Apple, Amazon, Facebook, and beyond?
The answer is yes—with fractional shares.
What are fractional share stocks?
A fractional share stock is what it sounds like—a piece of an entire share of stock. For example, at the time of this post Amazon is trading for well over $3,000 a share, but with fractional purchases, you can go through online trading accounts or most any traditional broker and purchase $100 worth of Amazon stock and receive the corresponding fraction (1/30 in this case) of a share.
Why are fractional share stocks important?
For investors who want to own a piece of larger, high-performing companies, fractional shares open up the opportunity to participate in those market gains. In the past, the price has been a barrier for aspiring investors; not everyone has hundreds or thousands of dollars to purchase shares of a hot stock. With fractional shares, anyone can grab a piece of long-term performers without dumping all their cash into one company, and still keep a diverse portfolio.
Pros of fractional share stocks:
Fractional shares allow the average investor to have a wider pool of investment options since no stock’s price is out of reach.
Fractional shares provide diversification at a lower cost. Diversification is one of the secrets to wise investing and preventing big losses. Instead of investing $1000 into just a handful of shares from one or two companies, you can spread that money among as many companies as you like—many investing gurus advise a portfolio of 25 different stocks or more.
They’re ideal gifts for children. Giving kids a fractional share of a company they love—such as Disney, Apple, or Nike—is an affordable way to help inspire them to learn about investing and the market.
Cons of fractional share stocks:
It’s easy to rack up fees. Because fractional shares make it easy to buy very small stakes in many different companies, if your brokerage charges commissions, you might wind up paying a lot of fees.
Not every brokerage allows customers to buy or hold fractional shares. This may limit your choice of stocks or choice of brokerages to work with.
It’s easier to make careless choices. Because of the low investment cost, some buyers may not do their homework or make careful decisions before they buy.
All in all, fractional shares are a newer, accessible, and pretty fun way to add more expensive and diverse stocks to your investment portfolio if and when you are ready to invest. But are you? At Aspen Wealth Strategies we’re here to help you sort priorities and lay a solid foundation of financial well-being before making any leap into investing; chat with one of our advisers today to see if stocks are the right choice for you.