Being able to invest in fractional shares is the latest in a string of innovations that make it easier for people of every income level to own stocks.
Up until recently, to get into investing, you would have to have an account minimum of $2,000, pay punitive fees for having a low balance, or have a limited number of low-risk investing options.
Making investing available to more people is good for everyone. Learning how to buy fractional shares of stock, and the benefits will help each of us become better investors.
What is Fractional Share Investing?
Fractional shares are a way for investors to buy a portion of a whole share of stock.
For example, as of today, a single share of stock in the parent company of Google is $1,329. Instead of buying a whole share, I could buy $30 worth of that stock or 2.3% of one share.
Not all brokerages or investing apps allow you to purchase in fractions of stock, and of those that do, you need to make sure you are using the one that is best for you.
Best Brokerages and Apps to Invest in Fractional Shares
Betterment offers the most hands-off investing of any brokerage. They are a robo-advisor that takes a series of questions that you answer when you sign up and uses your answers to determine how aggressive you should be in the market.
They invest your money in ETFs and stocks for you and automate rebalancing your portfolio as well as avoiding taxes as much as possible. Our Betterment review covers how it all works, but even if you are only investing $30 a month, your money will go into all the investments in your account.
M1 Finance is a top option because it does not charge anything to make your trades and gives you access to a wide variety of stocks and ETFs.
They handle fractional shares by allowing you to create a group or portfolio of stocks, and when you place money into the account, it purchases all those stocks for you. This includes deciding what percentage of your money goes toward each stock when you invest.
Our M1 Finance review details more about how it works and the advantages of their intelligent investing strategies.
Robinhood is a stock investing app that recently added fractional shares to its offering. They were one of the first companies to offer free trades on stocks and ETFs.
They will allow you to buy as little as 1/1000000 of a share of stock or fund, and every trade is commission-free. They also have one of the most straightforward interfaces of all the fractional share apps available.
Stash allows you to focus on investing in a specific industry or theme for your stocks. This can include entertainment, green investments, tech investing, or any of a long list of other industries/causes.
Stash also gives you access to personalized investment advice and a large amount of content for you to learn more about how you wish to invest going forward. You can get started with as little as $5 to invest in any one theme.
The only downside to Stash is that they charge a monthly fee of $1 for investors with a balance of less than $5,000 and a 0.25% account fee for accounts over $5,000. You can see more about how Stash works in our Stash investing review.
Public is a newcomer to the list of investing apps. They made a big splash by being one of the first to offer fractional-share investments.
All trades are commission-free, and they have a great interest rate for any cash in your account that has not been invested. This interest rate is frequently as high or higher than what you can get with a high yield savings account.
Motif was an early adopter of fractional shares. However, instead of buying individual stocks or ETFs, you select a group of 30 stocks (called a motif) and then invest in all 30 at once.
No matter what amount you invest, the money is distributed equally among the 30 stocks. You can also create several motifs or invest in sample motifs that are provided by Motif Investing.
Fidelity is one of the largest online brokerages in the United States. They have always given access to a wide variety of investments and are known for having some of the lowest trading and fund management fees in the industry.
Fidelity added fractional share investing as an option on all brokerage account starting in January of 2020. Having such a large and well-known brokerage buy-in was a significant boost to the concept.
You can learn more in our Fidelity Investments review as to whether this is the right brokerage for you.
Vanguard does not allow direct purchase of shares of stock, but they are one of the largest fund families for mutual funds and ETFs
When you invest in either mutual funds or ETFs, you are going to be purchasing hundreds, if not thousands, of different types of stock and bond investments.
As we show in our Vanguard review, the company has set itself apart as a top option for all investors by offering the lowest fund management fees in the industry.
Stockpile has set itself apart as a top brokerage to teach kids about investing. Not only do they sell fractional shares, they also have custodial accounts that allow parents to keep an eye on what and how their children are investing.
The cost of each trade in Stockpile is 99¢, and there are no fees for setting up the custodial accounts. Our stockpile review can help you decide if they are a good fit for you.
Benefits of Fractional Shares
Fractional shares are a significant change from the way stock trading has been traditionally handled. The main advantages of fractional share investing are:
It was hard to be able to invest in individual stocks when I was starting out. Every purchase felt like a much bigger risk.
Having to purchase whole shares prevented me from buying individual stocks for a long time, even if I believed in the future of the company. Instead, I focused my efforts on mutual funds and ETFs, which have done well, but a few of the stocks I would have picked have done much better than my broader funds.
The ability to pick your own stocks gives you many more options than investing in large funds.
Being able to buy small amounts of many different stocks from no-fee brokerages makes diversifying on your own a snap.
Before this type of investing was available, your options for diversifying were to have a bunch of money and buy many different stocks or go with a mutual fund or ETF. We have so many more diversification options now that even five years ago.
When I started investing in individual stocks, one of the things that always annoyed me was getting a dividend and not having enough to purchase more stock. That money would sit on the sideline and wait till I put my next investment of cash into the account.
With fractional shares, you can have those dividends immediately reinvested and working for you in the market.
While diversification is a big way to reduce risk, the primary way I see fractional shares of stock helping reduce risk is for first-time investors. When I was building up a portfolio, I had to pray that one of my first investments didn’t tank on me, setting me back months in investing.
Now you buy as much of a stock as you want and can spread that risk out.
Final Thoughts on Buying Fractional Shares of Stock
I am a huge fan of fractional shares of stock. The more we can make investing available to all people, the better off all of us will be.
Not only does the option of fractional shares provide access to all income levels, but it also makes the risk involved getting into the market for the first time much lower.
If you are a new investor or someone who does not want to place your first stock market investments into a few whole shares of stock, investing in fractional shares of stock can help you learn how to handle your portfolio with limited setbacks as you get started.