Investing in the stock market can be a powerful way to build wealth, but the high price of some stocks can be a barrier for many investors. Fractional shares have emerged as a solution, allowing investors to buy a portion of a share rather than the entire share. This article will guide you through how to buy fractional shares of expensive stocks, explaining the benefits, process, and key considerations for this innovative investment approach.
Understanding Fractional Shares
Fractional shares represent a portion of a single share of stock. Instead of needing to buy a full share, you can invest a specific dollar amount or a fraction of a share. This opens up investing in high-priced stocks to those with limited capital.
Benefits of Buying Fractional Shares
Fractional share investing offers several advantages:
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Accessibility: Allows investors with small budgets to invest in expensive stocks like Amazon or Google.
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Diversification: Enables investors to diversify their portfolios across various stocks and sectors, even with limited funds.
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Dollar-Cost Averaging: Facilitates dollar-cost averaging by allowing consistent investments of fixed amounts, regardless of stock price.
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Portfolio Allocation: Allows investors to allocate their investments according to their desired percentages, regardless of share prices.
How to Buy Fractional Shares
The process of buying fractional shares is relatively straightforward, but it’s important to choose a brokerage that offers this feature.
1. Choose a Brokerage That Offers Fractional Shares
Not all brokerages offer fractional share trading. Research and select a brokerage platform that supports this feature. Popular online brokerages that offer fractional shares include:
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Robinhood
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Fidelity
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Charles Schwab
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Interactive Brokers
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Webull
2. Open a Brokerage Account
If you don’t already have one, you’ll need to open a brokerage account with your chosen platform. This process typically involves providing personal information, identification, and funding your account.
3. Search for the Stock
Use the brokerage platform’s search function to find the stock you want to invest in. Enter the company name or ticker symbol.
4. Select “Fractional Shares” Option (if available)
Some brokerages may clearly indicate if a stock is eligible for fractional share trading. Look for this option during the order process.
5. Enter the Dollar Amount or Fraction
Instead of entering the number of shares, you can enter the dollar amount you want to invest or the fraction of a share you wish to purchase.
6. Place Your Order
Review your order details and confirm your purchase. The fractional share will be added to your account once the order is executed.
Important Considerations
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Brokerage Fees: While many brokerages offer commission-free trading, be aware of any potential fees associated with fractional share trading.
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Order Execution: Fractional share orders may be subject to different execution rules compared to whole share orders.
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Availability: Not all stocks may be eligible for fractional share trading, even at brokerages that offer the feature.
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Account Types: Fractional share trading may not be available in all account types (e.g., some retirement accounts).
Conclusion
Buying fractional shares of expensive stocks has democratized investing, making it accessible to a wider range of individuals. By choosing a brokerage that offers this feature and understanding the process, you can start investing in high-priced companies with any budget. Fractional shares also facilitate diversification, dollar-cost averaging, and portfolio allocation, empowering investors to build well-rounded portfolios. Remember to research brokerages, understand potential fees, and be aware of order execution details. This information is for educational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making investment decisions.
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Frequently Asked Questions (FAQ)
1. What are fractional shares?
Fractional shares represent a portion of a single share of stock, allowing investors to buy a piece of a share rather than the entire share.
2. What are the benefits of buying fractional shares?
Benefits include increased accessibility to expensive stocks, portfolio diversification, facilitation of dollar-cost averaging, and greater control over portfolio allocation.
3. How do I buy fractional shares?
To buy fractional shares, you need to choose a brokerage that offers this feature, open an account, search for the stock, select the fractional shares option (if available), enter the dollar amount or fraction, and place your order.
4. Which brokerages offer fractional share trading?
Popular online brokerages that offer fractional shares include Robinhood, Fidelity, Charles Schwab, Interactive Brokers, and Webull.
5. Can I buy fractional shares of any stock?
Not all stocks may be eligible for fractional share trading, even at brokerages that offer the feature. Availability can vary.
6. Are there any fees associated with fractional share trading?
While many brokerages offer commission-free trading, it’s important to be aware of any potential fees that might be specifically associated with fractional share trading.
7. How does fractional share trading affect order execution?
Fractional share orders may be subject to different execution rules compared to whole share orders. It’s important to understand your brokerage’s policies.
8. Can fractional shares be purchased in all account types?
Fractional share trading may not be available in all account types, such as some retirement accounts. Check with your brokerage.
9. What is dollar-cost averaging and how do fractional shares facilitate it?
Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of the stock’s price. Fractional shares facilitate this by allowing you to invest consistent dollar amounts even in high-priced stocks.
10. Is fractional share investing riskier than traditional stock investing?
Fractional share investing itself doesn’t introduce new risks compared to traditional stock investing. The risks associated with investing in a particular stock remain the same, regardless of whether you buy a whole share or a fraction of a share.
