Fractional shares are a great way for new investors to get started in the stock market. They allow you to invest in stocks that you might not be able to afford to buy whole shares of, and they offer a number of other benefits for new investors.
What are fractional shares?
A fractional share is a portion of a single share of stock. It is less than one full share. Fractional shares can be bought and sold just like whole shares, and they can earn dividends just like whole shares.
Why are fractional shares important for new investors?
Fractional shares are important for new investors because they allow you to invest in stocks that you might not be able to afford to buy whole shares of. For example, if you want to invest in Apple, but you only have $100 to invest, you can’t buy a whole share of Apple stock, which is currently trading at around $150. However, you can buy a fractional share of Apple stock for $100. This allows you to get started in the stock market and to own a piece of a company that you believe in.
What are the benefits of fractional shares for new investors?
In addition to affordability, fractional shares offer a number of other benefits for new investors, including:
Diversification: Fractional shares allow you to diversify your portfolio with less money. This is because you can buy small amounts of shares in multiple companies, rather than having to save up enough money to buy whole shares of a single company.
Dollar cost averaging: Fractional shares can be used to dollar cost average your investments. This means that you can invest a set amount of money on a regular basis, regardless of the stock price. This can help you to smooth out the volatility of the stock market and to buy more shares when prices are low.
Access to high-priced stocks: Fractional shares give you access to high-priced stocks that you might not be able to afford to buy whole shares of. This means that you can invest in companies that you believe in, even if they’re not affordable for most investors.
How to Buy Fractional Shares
Not all brokerages offer fractional shares, so it’s important to check with your brokerage to see if they offer them. If they do, you can buy fractional shares through your brokerage account just like you would buy whole shares.
Here are the steps on how to buy fractional shares through a brokerage:
Log in to your brokerage account.
Click on the “Trade” tab.
Select the stock that you want to buy.
In the “Quantity” field, enter the number of fractional shares that you want to buy.
Click on the “Buy” button.
Your brokerage will then purchase the fractional shares for you and add them to your account.
The Drawbacks of Fractional Shares
While fractional shares offer a number of benefits for new investors, there are also some drawbacks to consider:
Commissions: Some brokerages charge commissions for trading fractional shares. This can eat into your profits, so it’s important to compare brokerages before you buy fractional shares.
Dividends: Fractional shares may not pay out the same amount of dividends as whole shares. This is because dividends are usually paid out based on the number of whole shares owned.
Liquidity: Fractional shares may be less liquid than whole shares. This means that it may be more difficult to sell them without taking a loss.
Conclusion
Fractional shares can be a great way for new investors to get started in the stock market. They offer a number of benefits for new investors, including affordability, diversification, and dollar cost averaging. However, it’s important to be aware of the drawbacks of fractional shares, such as commissions and liquidity.
If you’re a new investor, I encourage you to consider using fractional shares to build your portfolio. They can be a great way to get started in the stock market and to invest in companies that you believe in.
