A good entry way to enter trading the stock market may be through buying fractional shares or partial shares. If one has insufficient funds, getting into stock trading may indeed seem prohibitive. Fractional shares represent portions of a stock that are less than one whole share, allowing investors to purchase or own fractions (like a slice of pizza) without acquiring the entire share.
Fractional shares offer an accessible entry point for those interested in stock market investment but deterred by the high prices of individual stocks. Instead of being limited to penny stocks or cheaper alternatives, fractional shares enable investors to diversify their portfolios by gaining exposure to expensive stocks like MSFT, NFLX, META, NVDA, among others.
This approach offers several advantages:
Increased Diversification: Investors can diversify their portfolios across different stocks and industries without needing a large amount of capital. Fractional investing further enhances this risk management approach by enabling investors to purchase small portions of numerous stocks or ETFs for relatively low prices, typically ranging from $1 to $5 per share. This affordability allows investors to build broader and more diversified portfolios than they might have been able to achieve otherwise.
Lower Market Entry Barrier: Fractional investing reduces the amount of funds required to enter the market, making investing more accessible to a wider range of individuals.
Faster Portfolio Building: Rather than waiting to accumulate enough funds to buy full shares, fractional investing allows investors to start building their portfolios immediately. Moreover, investing in fractional shares still entitles investors to receive dividends proportional to the value of the shares they own. For example, if an investor owns 50% of a specific share and the company pays a dividend, they will receive a dividend payment equal to 50% of the per-share amount.
“While fractional shares offer several benefits, there are also some drawbacks to consider, and it is important to explore them to make more informed decisions beforehand..”
Limited Availability: Not all brokers offer fractional shares, so your choices may be restricted based on the brokerage account/s you use.
Fees and Commissions: Some brokers may charge fees or commissions on fractional share transactions, which can eat into your returns, especially on small investments.
Liquidity Issues: Selling fractional shares can sometimes be more challenging than selling whole shares, potentially leading to lower liquidity.
Dividend Reinvestment Complications: While you can earn dividends on fractional shares, reinvesting these dividends can be more complex and may result in holding even smaller fractions.
Voting Rights: Fractional shareholders might not have the same voting rights as those who own whole shares, which can limit your influence in corporate decisions.
Account Management: Managing a portfolio with many small fractional shares can become cumbersome, making it harder to keep track of your investments.
While limited funds can make stock trading seem prohibitive, buying partial shares makes it accessible to more people. By leveraging fractional shares, investors can overcome financial barriers and embark on a journey of diversified and potentially lucrative investment opportunities in the stock market. Always remember to do thorough research and consider taking a class to make informed decisions aligned with your financial goals.
Consider taking a class to make informed decisions aligned with your financial goals.
At this point you may be wondering whether your brokerage account allows fractional trading, so you can quickly get started. While not all of them provide this capability the following list below provides you with brokerage platforms that allow you to perform fractional trades and start earning some money.
This table format clearly outlines the capabilities of each platform regarding fractional shares, dividend reinvestment, and the range of available securities.
One final note on CashApp that has become quite popular: Cash App is a financial services platform; not a bank. Cash App Investing allows you to buy securities in dollar amounts instead of full share quantities, enabling you to acquire fractional shares through any purchase or sale. These fractional shares are not transferable. If you close or transfer your Investing Account to another firm, the fractional shares must be liquidated, which may incur fees and result in a loss of value. This liquidation may also have tax implications. Please consult your tax advisor for more details on the potential tax consequences of investing in fractional shares. Fractional shares cannot be converted into certificate form and mailed. For more information on the unique risks and limitations of fractional shares, please refer to your Cash App Investing Customer Account Agreement.
Happy trading folks, one share slice at a time!!
By Cyd Nzyoka, PhD
Cyd is an independent researcher, writer & HR/Immigration consultant. She’s versatile, passionate about investing, taxes, immigration, teaching at the tertiary level, corporate training and dissertation coaching. She’s involved in writing on multicultural education, social justice and careers among other topics. You may read her works under IGI Global Publications. Cyd is a graduate of Capella University - School of business and technology. Email thoughts and comments to Cydnz@yahoo.com
Disclaimer
This blog is written for educational and informational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. They author may or may or may not have positions in Financial Instruments discussed in this blog. Future results can be dramatically different from the opinions expressed therein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.
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