Fractional shares help make investing more accessible if you have limited capital or are just getting your feet wet. Here’s how to get started.
Everyone knows one of the best ways to grow wealth and beat out inflation is by investing in the stock market. However, some stocks can be extremely expensive for a single share. In fact, one share of Berkshire Hathaway (BRK-A, to be specific), a famous conglomerate headed by the prolific Warren Buffet, is valued at over $500,000 at the time of writing.
Fortunately, there’s a way for any investor to get some teeth in the game — regardless of the stock’s trading price. Through fractional shares and investments, you can easily diversify your portfolio and gain stock in businesses that would normally be out of reach.
In this article, we’ll explain what fractional shares are. Then we will take a look at the top brokerage firms that allow investing this way. Finally, we’ll cover some of our favourite stocks you can start adding to your portfolio this trading session.
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What are fractional shares?
As the name implies, a fractional share is a type of investment that allows a person to own a small portion — or fraction — of stock without needing to purchase a full share. In practice, it gives the person the option to buy a dollar amount versus a number of shares.
In recent years, it was made very popular by the retail trader platform Robinhood. However, fractional shares aren’t a new concept. For instance, dividend reinvestment plans (DRIP) will often leave the investor with a fractional share. It can also occur when a company decides to split their stocks.
What advantages do fractional shares have?
Invest with limited capital
The biggest benefit of fractional shares is it opens up a lot of doors and opportunities that normally would be unavailable to the normal investor. For instance, with Robinhood, you can invest as little as S$1 into whatever stock you like—Apple, Google, Twitter, Tesla, etc.
If not for fractional investing, a lot of these would be out of reach until there was a serious crash or a stock split.
Diversify your portfolio
Another benefit is that it allows investors to spread their risks around different companies. The most stable and popular stocks also tend to be the most expensive, where it easily reaches over S$10,000 or more just to buy a few stocks. However, fractional shares help you pick up whatever company you like at the price that fits your budget.
Are there disadvantages to fractional shares?
There’s one major downside to fractional investing. When you decide to move to another broker, it will be difficult to bring your fractional shares along. Typically, you will need to liquidate the fractional shares and transfer the funds. Or you will need to buy/sell to the nearest whole share, then you will be able to move your portfolio out to another company.
Another disadvantage is more psychological. Investing is a long-term strategy, and fractional investments make it easy to focus on short-term losses and gains.
Regardless, there’s no denying that fractional shares have made investing a reality and a possibility for many average investors.
What stock brokerages allow fractional shares?
Over the years, fractional shares have become popular and a lot of firms offer this option. Here are the top X companies that allow fractional shares:
A pioneer in the field, Robinhood was one of the first companies to offer S$0 commission trading AND fractional shares. They’re one of the easiest to get started with and don't require any minimum deposit.
Webull is a direct competitor to Robinhood and offers a lot of the same features, including fractional shares, options, DRIP, and more. While they don’t require a deposit to open up an account, you will need at least S$5 to begin investing.
4) SoFi Invest
Stockpile is another platform that caters to new investors and offers fractional shares. They push people to invest in companies they care about and shop at. And their intuitive search feature allows you to find parent companies more easily.
Fidelity is an established name in the industry and they offer a full suite of tools to help investors, including fractional shares. They even have an AI-powered robo-advisor to help manage your account and pick out investments.
What fractional shares should you buy?
However, we’ve gone ahead and picked out 10 stocks that should be in any portfolio. These offer steady growth with a proven track record. And they can also hedge against those riskier investments you make.
1) Apple (AAPL)
2) Amazon (AMZN)
3) Alphabet (GOOG | GOOGL)
4) Walt Disney Company (DIS)
5) Microsoft (MSFT)
6) Netflix (NFLX)
7) NVIDIA (NVDA)
8) Tesla (TSLA)
9) Procter & Gamble Co (PG)
10) Starbucks (SBUX)
These 10 are general ‘safe’ stocks that are great for beginners and should be in any portfolio looking for steady growth.
Fractional shares are a powerful tool for investors, especially for those with limited capital or who are just getting their feet wet. Fractional shares give them the freedom to invest where they like without taking as big a risk that comes with purchasing an entire share.
The stockbrokers that offer the option understand how fractional shares democratise the entire industry and work to help their clients grow and understand investing better.
So regardless of your income level or trading expertise, right now is the perfect chance to join one of these companies and start your investing journey today!
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