Fractional shares have revolutionized stock market investing for everyday investors. This innovative approach lets you purchase less than a full share of any company, which means even modest investment amounts can build a well-diversified portfolio instead of forcing you to put everything into a single expensive stock.
However, fractional shares do come with certain limitations. This raises an important question: are fractional shares worth it? In this comprehensive guide, we’ll examine fractional shares from every angle—what they are, their advantages and disadvantages, plus the best platforms available for fractional investing success.
Let’s dive in!
What is a Fractional Share?
A fractional share represents a portion of one complete stock share in a company. For instance, if you invest $20 into a company trading at $100 per share, you’d own exactly 1/5th of that share—this is fractional share investing in action.
This approach proves especially valuable for stocks trading at thousands of dollars per share. Consider Amazon stock, which trades around $3,500 per share. Traditional investing requires a $3,500 minimum investment for one share, with additional purchases in $3,500 increments—$7,000 for two shares, $10,500 for three.
With fractional share investing, you can invest in any company based on your preferred dollar amount. This allows you to allocate funds across your portfolio strategically, without being constrained by individual share prices.
Pros and Cons of Fractional Shares
While fractional share investing represents a significant advancement for investors—particularly those starting with limited capital—it’s important to understand both the benefits and potential drawbacks. Here’s a complete breakdown of fractional shares’ pros and cons.
Pros
- Start investing with minimal capital: Most fractional share platforms accept investments starting at just $5.
- Access expensive stocks: Invest in companies with thousand-dollar share prices while purchasing exactly the amount you want.
- Simplified portfolio allocation: Add stocks to your portfolio based on dollar amounts rather than share prices. With $5,000 to invest across 10 stocks, simply purchase $500 of each.
- Dollar cost averaging benefits: Purchase fractional shares of the same company repeatedly over time rather than buying whole shares at once. This creates a cost basis averaging all price fluctuations during your buying period.
Cons
- Limited transferability: Changing brokers may prevent you from transferring fractional shares. You’ll need to sell them first, potentially triggering fees or tax implications.
- Potential dividend loss: Owning tiny fractions of dividend shares may result in payouts below $0.01. Most brokers keep these micro-dividends rather than distributing them.
- Restricted stock selection: Available fractional share options vary significantly between brokers. Your investment choices may be more limited compared to traditional investing.
Top Services for Investing in Fractional Shares
Fractional share investing has gained tremendous momentum recently, with major stock brokers now offering these services. Here are the leading platforms for buying and selling fractional shares.
M1 Finance
M1 Finance offers a distinctive fractional share investing approach through “pies”—custom miniature portfolios you design completely. Simply determine each holding’s percentage and your total investment amount, and M1 Finance handles the allocation automatically.
The platform features over 100 expert-curated pies available for investment with just $1 per holding. Additionally, M1 Finance provides thematic pies focused on fractional shares of Black-led, women-led, and LGTBQ-led companies.
Individual company fractional shares are also available through M1 Finance. Most US stocks and ETFs qualify for fractional investing with only a $1 minimum investment requirement.
Click Here To Get StartedRobinhood
Robinhood offers a straightforward fractional share experience compared to M1 Finance’s pie approach. The platform allows fractional investing in virtually any US stock or ETF starting with just $1.
Get A Free Stock When You Open An AccountFidelity
Fidelity provides fractional share access to over 7,000 US stocks and ETFs. The platform requires a minimum $1 investment with zero trading commissions.
Click Here To Get StartedCharles Schwab
Charles Schwab limits fractional share investing to S&P 500 stocks with a $5 minimum investment. However, Schwab’s unique feature allows simultaneous purchases of up to 30 different fractional shares, enabling diversified portfolio creation through a single trade.
Click Here To Get StartedBetterment
Betterment operates as a robo-advisor, creating customized ETF portfolios aligned with your investment goals and risk tolerance. With no minimum balance requirement, Betterment automatically invests your contributions into fractional ETF shares as you fund your portfolio.
Click Here To Get StartedConclusion: Investing in Fractional Shares
Fractional share investing has transformed stock market accessibility, especially benefiting investors with smaller portfolios. Despite some limitations, fractional shares simplify balanced portfolio construction and eliminate share price barriers when investing in quality companies. Numerous platforms now support fractional investing, with many accepting investments starting at just $1.
