Many new investors feel overwhelmed by all of the different investment options on the one hand, and all of the rules and constraints on the other. There are so many choices to make, so much advice and information to take in, yet so many limits on what and how you can buy and sell given your savings and your overall financial situation.
Then you hear a term like “fractional investing” and fear there’s one more thing to learn about, one more decision to make, and one more set of rules and limits to navigate.
Here’s some good news: fractional investing is easy to learn and even easier to do, and open up a world of simple investing that anyone can take advantage of.
Fractional Investing: Buy the Best at Any Price
In traditional stock investing, you have to buy whole shares of a company. If Alphabet Inc. (formerly Google) is trading at around $700 per share, you need to invest a minimum of $700 or so—the price of one share—if you want to own a piece of the company. If you want to invest any more than the price of a single share, you’d be looking at $1,400 or more—the price of two shares—with nothing in between.
Buying in whole share amounts sets a minimum entry level for owning any given company, and limits your investment options to whole share increments.
Fractional investing, as the name suggests, lets you purchase fractions of shares, meaning you can invest in any publically traded company at any dollar amount you’d like. Instead of needing to invest in increments of $700 if you want to own stock in Alphabet Inc., for example, you could invest $100, or $1,000, or just $10—any dollar amount you want. And when you choose to invest a fraction of the current share price, you get a corresponding fraction of the share.
For example, if Alphabet Inc. is trading at $700 and you invested $70 via fractional investing, you would be purchasing 1/10 (one tenth) of a share. $350 would be half a share, $175 a quarter of a share, and so on.
A fractional investment buys the same dollar-for-dollar value in a company as a traditional purchase of whole shares of stock, and gives you more freedom in the amount you invest in any given company.
It should be noted that some brokerages offering fractional investment don’t actually make fractional purchases until the end of a trading day (or the beginning of the next trading day). There’s no guarantee that the price of the stock won’t change between the time you place your order and the time the trade is executed, meaning you won’t know precisely what fraction of a share you’re purchasing.