Invest the Way You Want
First off, what is a fractional share? A fractional share is any amount less than one whole share, such as 0.68 or 2.34 shares. That’s right, you’re no longer confined to buying stocks and ETFs in whole share amounts. You can now invest based on the amount of money you’d like to invest. And investors get the same real-time market price whether it’s for 200 shares or 0.2 shares.
Say you get a tax refund of $627. What could you do with it? You could put it in the bank. But with interest rates near zero, don’t expect your money to grow very much. Or you might consider investing it in individual stocks or index-based ETFs, seeking potential future growth.
But what will you invest in? In the past, you had to think about the ‘per share’ cost of your investment. If you wanted to invest in Nike, for example, you had to find out its market price (around $60) to figure out how many shares you could buy. In this case, with $627 it would be 10 shares for $600, leaving you with $27 left over (not accounting for fees or commissions). With fractional shares, you could just invest your full refund and get 10.45 shares of Nike ($627/$60=10.45 shares (again, not accounting for fees or commissions)).
If you wanted to invest your refund in a high-priced stock, such as Priceline (PCLN) at around $1,300 share, previously you were out of luck because you couldn’t afford a full share. But with fractional shares, you can make that investment and get 0.4823 shares of Priceline. The bottom line is that you can invest in whatever you want, regardless of how much you have. Want to invest $50 in a $200 index ETF? Now you can.
Create a Diversified Portfolio in One Transaction
Or maybe you’d like to split your refund between several investments and create a more diversified portfolio? With fractional shares and DriveWealth’s Passport app, you can do it in one easy transaction.
Simply select the stocks or ETFs you’d like to invest in, enter the dollar amount to invest, and Passport will automatically allocate your investment equally between the selected securities using fractional shares. You can also customize the allocation, perhaps giving more weight to one stock or ETF, and Passport will automatically recalculate the other stocks’ portions to fit the remaining dollar amount of your investment.
Invest Regularly with Dollar Cost Averaging
Dollar cost averaging is a method of investing where you invest the same dollar amount on a regular schedule, such as every other week or once a month. The idea is that no one, not even a professional money manager, is able to accurately pick the right time to invest all the time (timing the market). By spreading out your investments in equal amounts over regular intervals, you let the market do what it wants while you keep investing. The result will be that you buy more shares when prices are low and fewer shares when prices are high, resulting in a lower average per-share cost over time.
In the past, if you wanted to dollar cost average your investments, you were stuck trying to figure out how many shares of each stock you could buy at various prices every other week or month. Now with fractional shares and your selected portfolio on the Passport app, dollar cost averaging is easier than ever. Just make your investments on your regular schedule, and Passport will automatically divide your investment according to your selected allocation percentages at current prices. Easy!
Investing with fractional shares is a revolutionary new tool for investors of all sizes. It’s especially valuable for investors who don’t have a lot of money, but still want to invest in their ideas and favorite brands. Now you can start investing the way you want and in what you want.