Apr 9, 2022
What Are Fractional Shares? Investing for Every Budget
By Stash Team
Fractional shares can help you build a bona fide portfolio (on a budget you can afford).
Fractional shares are just what they sound like — fractions, or pieces of a whole share of stock, bond, or fund. As portions of single shares, fractional share investing allows you to buy a small slice of a share, which requires less money than the price of a full share. And that means investing could be within reach for everyone.
How are fractional shares different from regular shares?
You can also buy shares of a fund, like a mutual fund or an exchange-traded fund (ETF). In that case, you’re buying a piece of ownership in the fund’s portfolio of investments, rather than a piece of a specific company.
Whether you want to invest in a stock or a fund, many brokerage firms allow you to do so by purchasing fractional shares. You might think of this in terms of a pizza. If the whole pie is one share, then a fractional share is a slice. And this pizza may increase in value, grow over time, and earn dividends, which we’ll explain more below. And if it does, you get a taste of the company’s success. Though keep in mind that investing involves risk, and if the pizza as a whole decreases in value, your share will also decrease in value.
Because buying a single slice costs less than an entire pizza, understanding how to invest in fractional shares can help you start building your portfolio sooner.
How do fractional shares work?
A single share of stock can be expensive. Many stocks on the S&P 500 index trade for over $100 a share, and particularly high performing companies can go for more. For example a single share of Google’s parent company, Alphabet, cost over $2,800 as of October, 2021.
With fractional shares, investing in these high-performing stocks can be more accessible if you don’t have much room in your budget to buy stock. Say you want to purchase stock in a popular tech company that’s valued at $100 a share, but you only have $20. Fractional share investing could allow you to purchase a fifth of a share of that company (100 divided by 20 = 5).
Like all investments, fractional shares involve risk; their value can increase, stay the same, or even decrease. There are no guarantees, but historically stocks have risen over the long term. Learning about your risk profile can help you choose the right balance of risk and potential reward.
Benefit of fractional share investing
Fractional shares allow you to start out small, but you can still potentially earn a return on your money. That’s especially true if you have a long time horizon for your investment. Even small beginnings can earn you money, and with the power of compounding, they can grow significantly given enough time.
Investors who own fractional shares are also eligible to receive dividends from companies that pay them. You can spend your dividends or reinvest them in your portfolio. If you’re a Stash customer, you can turn on the dividend reinvestment program (DRIP) and automatically use the dividends you earn to purchase more stock. So even without more money coming out of your pocket, you could keep growing your portfolio.
In a nutshell, investing in fractional shares can make it more affordable to start building the portfolio that’s right for you. And if you follow the Stash Way, you can invest a little more money on a regular schedule to work to grow your investments bit by bit.
How to invest in fractional shares with Stash
Learning how to invest in fractional shares can be simple with Stash. Just open an account, choose the investments that interest you, and Stash does the rest. Stash offers fractional shares of ETFs and single stocks, starting at any dollar amount.1 If you’re not sure where to start, you might try the Smart Portfolio, which creates a portfolio aligned with your risk profile.
If you’ve ever wished you could get in on an exciting stock but found the share price too steep, you might want to consider fractional shares. Investing can be accessible when you take it one slice at a time.
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***1For securities priced over $1,000, purchase of fractional shares starts at $0.05.
Remember, not all stocks pay out dividends. And there’s no guarantee any stock will pay dividends in a quarter or year. Dividends may be subject to additional taxes, and are considered taxable income. Please refer to the IRS for additional information.
A “Smart Portfolio” is a Discretionary Managed account whereby Stash has full authority to manage. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. Stash does not guarantee any level of performance or that any client will avoid losses in the client’s account. “Smart” is only available in Growth ($3) and/or premium ($9).
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