What are fractional shares?
The armchair explanation of Fractional shares that they’re fractions/pieces/portions of a share of a company on the stock market.
Investopedia’s definition of fractional shares is:
“Less than one full share of equity is called a fractional share. Such shares may be the result of stock splits, dividend reinvestment plans (DRIPs), or similar corporate actions. Typically, fractional shares aren’t available from the stock market, and while they have value to investors, they are also difficult to sell.”
Whatever word you want to use, they’re not one whole share.
If you already invest in stocks, you might already be getting fractional shares when you chose to automatically reinvest your dividends back into that same stock.
If you bought 1 share of Apple at $100 and Apple pays you $1 in dividends and you opted for reinvestment of that dividend, you might see 1.01 shares of Apple.
How will fractional shares benefit you?
Plain and simple, fractional shares benefit you in that if you don’t have enough money say for 1 share of Apple at $100, you can buy a piece of an Apple share at whatever money you do have.
For example, I put $5 into each of these companies: Apple, Amazon, Netflix, Tesla, Google, Facebook, Microsoft, Uber, Lyft, and a lot of other companies.
Before fractional shares were available to us, buying 1 share from each of these companies would have cost thousands of dollars.
Now, you can get started investing in these companies (or other companies you’re interested in) for a couple of bucks.
Lower Entry To Buying Stocks
Fractional shares allows you to start investing from a lower entry cost.
So if you’re tired of being in the rat race but don’t know where to start but you don’t have much money, you can buy fractional shares of companies for a few dollars instead of the potential hundreds of dollars it would have cost back in the day.
Build Wealth With What Little Money You Do Have
This allows you to start building wealth with what little money, you do have, instead of having to save up lots of money to potentially buy one share of a company.
For example, if you’re only able to save $10 a week toward investing in stocks to build wealth, before fractional shares, you’d have to save for 10 weeks to buy a $100 share of Apple.
And that number might change in the 10 weeks if Apple stock grows higher, forcing you to save even more just to buy 1 share.
But with fractional shares, you’re now able to put that $10 every week into Apple.
So in 10 weeks, you might have 1 whole share of Apple, or whatever fraction it is if Apple stock went up.
This also allows you to start getting any potential dividends that the stock would give, allowing you to build up your wealth even more than if you just waited to buy one whole share.
Disclaimer: I use Apple as an example but I hope you understand that situations are different for every stock, every company, and the social-political-economic climate, etc.
So your numbers and experiences will vary.
Gain Investing Experience
There’s a saying that there are just some things you can’t explain to a virgin with just pictures.
Meaning: sometimes you just have to do it to gain the experience of what it’s like.
When I first started investing in 2014, I lost hundreds of dollars my first year.
But gained valuable experience.
Back then companies were charging $5-10 per trade.
Now you can trade for free from Robinhood.
It’s a trading app that doesn’t charge commissions on trading and it changed the game of trading stocks.
With Robinhood allowing fractional shares, you’re now able to gain investing experience for a lower starting investment than back in the day (a few dollars now versus tens to hundreds of dollars back then).
Just to give you an example, back in 2014 if a share of Coca Cola was $40, E*trade charged $10 to do the trade.
That meant if you only had $40 to invest, it would cost you $50 total dollars to buy one share of Coca Cola plus the commission.
Meaning you would already start off with a 25% loss on your investment and had to wait for Coca Cola to get up to $60 to break even (because $10 commission for buying and $10 for selling).
So thank the lord you don’t have to live in that world now because Robinhood is better and lowered the commission to zero.
How to buy fractional shares of companies you like?
Here’s the link to Robinhood an app for your phone.
Note that’s my invite link, where if you make a Robinhood account via that link, we could both get a free stock of a company like Apple, Ford, GE, etc.
So we’ve SEEN fractional shares, but never before have us common folk had the ease/freedom/ability like how we do now to BUY fractional shares.
Good luck with your investments and your journey toward building wealth!
Disclaimer: Things might have changed since writing this, so do your own homework. None of this is meant to constitute investment advice so talk to a real financial advisor etc. You’re responsible for your own actions.
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