Have you ever seen the price of a single share of Amazon stock and thought it’d take a six-figure salary to afford that? Or maybe you’ve wanted to invest in the stock market but didn’t think you had enough money to start.
No worries, you’re not the only one.
Investing used to seem like it was only for wealthy people who could throw thousands of dollars around.
But there’s a new investing model that changes everything: fractional investing.
In today’s guide, we’ll teach you how it works and how you can use it to grow your portfolio.
Let’s get started!
What Is Fractional Investing?
Fractional investing lets you buy smaller portions of shares of stocks and funds. It’s like cutting each company’s share into affordable bite-sized pieces.
For example, say a single share of Tesla costs $200. With fractional investing, you could spend $20 to buy 1/10 of a Tesla share or just $5 to get 1/40 of a share.
The benefits are the same as if you owned the whole share. You get any dividends or stock splits on the fractions you own. And if the share price increases, so do your fractions’ value.
Any fractions you buy appear in your regular brokerage account, allowing you to sell them the same way as full shares.
Benefits Of Fractional Investing
There are two main advantages to fractional share investing that can help boost your portfolio:
1. More Diversification
Diversification means owning a mix of different investment assets to help reduce risk in your portfolio.
But traditionally, diversifying required spreading a lot of money across many full shares of stocks and mutual funds and putting down a large upfront investment.
You can do this with fractional shares but with a lot less. Just invest small dollar amounts in fractions of various assets, and you’re set.
For example, you could buy fractions of:
- Blue chip stocks like Apple, Microsoft, Disney
- Index funds that cover the whole stock market
- International stocks
- Bond funds focusing on short-term or long-term bonds
A diversified fractional share portfolio makes your money work harder with less risk.
2. Lower Barrier To Entry
Let’s face it: investing always seems kind of intimidating. Most mutual funds require a minimum of $1,000 or more to invest. And you needed at least enough money to buy one whole share of a stock.
Fractional investing blows these barriers away, and you no longer need to save thousands to start investing. Many brokers now allow you to open an account and make a trade with as little as $5 or $25!
How To Get Started With Fractional Investing
Setting up fractional share investing with an online brokerage account is surprisingly easy. Here’s what you need to do:
- Choose an investing platform: Most major brokers, such as Fidelity, Vanguard, and Charles Schwab, now offer fractional shares. Find one with low fees and fractional trade commissions.
- Open a standard brokerage account – Once you’ve chosen the investing platform, you’ll create a brokerage account, which will also be your individual taxable account.
- Fund your account: Transfer or deposit money from your bank. Many brokers allow starting with as little as $5 or $25 to make your first trade.
- Make your first fractional purchase: Search available investments and enter the dollar amount you want to invest. The fractions will be purchased with that amount.
- Keep adding consistently: Regularly invest small amounts, like $10 or $20 per week, to build your fractions over time.
When getting started, think long-term. Choose established, stable companies and funds that match your risk tolerance.
The key is steadily investing in quality assets aligned with your strategy. You can execute this plan over time with fractional shares, even if starting with a lower amount.
Will Fractional Investing Become The Norm?
Fractional shares are becoming more popular with investors, and there’s no doubt it’s changing the way we invest.
By removing barriers like high minimums, fractional shares allow anyone to invest.
They also align perfectly with mobile apps and an increasingly digitized world. With a tap or two, you can start investing on the go, making it much easier to manage your portfolio on the go.
As technology advances and trends change, it’ll only be a matter of time before this type of investment becomes the norm.
The Bottom Line
Fractional investing opens up opportunities that simply didn’t exist before.
With the right brokerage account and a few bucks, you can start owning pieces of popular companies and diversify your portfolio in no time!
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