Personal Finance
Lesson 13
3 min

What are fractional shares?

A fractional share is a smaller portion of one share. It means a company share is split into smaller portions for investors who don’t wish to buy or cannot afford to buy one whole stock. Buying fractional shares is great for novice investors or everyday investors who want to diversify their portfolio and reduce risk. 

  • Investors can buy a small portion of a share of a company, called fractional shares

  • Fractional shares cost the fraction of a price of one share

  • Fractional shares add flexibility to your spending 

  • They are great for diversification of your investment portfolio

In this lesson, you are going to learn about fractional shares.

*Until recently, investing in fractional stocks was only possible in the United States of America. Now, a few providers also offer fractional stocks in Europe via different setups like derivatives

In a nutshell: 

Buying a whole share of a company can be very expensive. Investing in fractional shares means you are only buying a fraction (aka a smaller portion) instead of buying a whole share. For the everyday working-class citizen, this is more cost-effective than saving up a lot of money to spend on one stock. Imagine a whole share like a cake. A fractional share would be like taking just a slice of that cake. 

What are fractional shares?

Fractional shares offer an attractive option to new investors just beginning to invest, simply because they are more affordable. This means you can invest with a small budget and that you don’t need high amounts to buy stock of a company.  

Why are fractional shares beneficial?

Let’s say you want to buy a portion of a company - a stock or share - in the hope of gaining  income from their profits in the future. So, for example, you want to buy one Amazon stock, which is valued at around $3,000 (USD) right now. Unfortunately, the everyday working-class citizen does not have a disposable $3,000 lying around that they’re willing to possibly lose. For some of us, that could be a couple months of rent or a nice holiday in the Bahamas. Wouldn't it be nice if you could just buy a portion of a share instead? That’s exactly what fractional shares are for. Some brokers allow you to invest in a share from as little as one dollar - a lot more affordable, right?

Fractional shares add flexibility

The great thing about fractional shares is that you are able to purchase stocks that you normally could not afford. This adds a lot of flexibility to choose where you want to invest, no matter the company. It is true some brokers do not offer fractional shares which is why it’s important to do your research when searching for an investment platform.

 
 
 
 

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Easy to fit into your budget

Investing in fractional shares is easy to pencil into your budget which means you don’t have to worry about putting aside a lot of cash. You are able to put your disposable income into the market almost immediately. For example, you could invest in a share of a stock with what would be your morning coffee money. 

Can fractional shares be profitable?

Fractional shares allow you to buy portions of multiple shares in different companies which is great for your portfolio diversification. But the real question is: how can I make money from fractional shares? It’s true that you would undoubtedly make less than if you bought one stock instead of a smaller portion, however, that doesn’t cut you out of the race for making a profit. 

The great thing about fractional shares is that you are able to purchase stocks that you normally could not afford.

The trick to making money from fractional shares is to be consistent with your investments. €10 a year isn’t going to generate you much profit. However, if you invest small, regular weekly payments, you can go on a long-term cost-averaging plan that is far more likely to bring you a profit.

This article does not constitute investment advice, nor is it an offer or invitation to purchase any digital assets.

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