If you are interested in starting a stock investment portfolio but have limited funds, the ability to buy a single slice of one stock can increase your chances of actually making money.
Instead of buying cheap stocks that may be risky, you can buy a fractional share, or a small portion, of some of the best-performing stocks on the market.
What Are Fractional Shares?
A fractional share is a portion, or fraction, of a stock. If you have limited funds to invest but want a $1,000 stock, being able to buy 1/10 of the stock could still lead to gains. Not all brokerage accounts offer fractional shares, but even if they do, you will pay a fee for each transaction.
It should be noted that, even if you can buy a fraction of a share of Apple or Amazon, you may not make money. Buying discounted stocks is not profitable if the company is not profitable. You will need to study the markets and follow individual stocks and exchange traded funds, or ETFs, to make wise purchases.
How to Buy Fractional Shares
You will need a brokerage account with a brokerage that offers fractional shares. To keep as much of your money as possible in the market, be ready to
• find a brokerage firm that has a flat monthly fee, rather than a per trade fee
• buy and hold
Historically, markets and exchanges tend to go up over time. If you have been following a public company that has done well over time, they will continue to do well. This does not mean they will make money every day.
Markets rise and fall. To make the best returns off of your stock investments, you will want to learn to hang on during the downtimes and enjoy the ride when the market climbs.
Advantages and Disadvantages of Fractional Shares
According to the experts at SoFi, the benefits of fractional shares are many. You can buy a portion of the biggest stocks on the market when you have the right account setup. You can get a good sense of your personal risk tolerance.
Risk tolerance is, fundamentally, your own heartburn level when the market starts to roller coaster. If you have $100 to invest, getting some experience and practice with fractional share investing with SoFi can help you get in the habit of holding on when the market falls or contracts.
What started out as $100 may be worth less than that for a while after a market contraction. However, when the market comes back, you will see your investment grow. Historically, the market has always come back.
The ability to invest in the stock market has been available to many employees thanks to 401(k) accounts. However, fractional share investing makes it possible to put money in the market right now and see the gains without waiting for retirement. Fractional share investing can be a wonderful teaching tool for those new to the markets.