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Buying Fractional Shares
When it comes to investing directly in high-priced stocks, small investors often face a challenge due to the high share price. While some companies conduct stock splits to make shares appear more affordable, others hesitate to do so as a high share price is often a sign of success in the stock market. In such cases, purchasing fractional shares, or fractions of a share, offers a solution for small investors to invest in these stocks. Although most online brokers currently only allow the purchase of whole shares, it is still possible to acquire fractional shares through a workaround.
Savings Plan as a Solution
Many established online brokers now offer a wide range of stock savings plans. With these plans, investors can regularly invest a fixed amount at specific intervals into individual stocks, with the minimum investment varying depending on the provider. Typically, it is possible to start with as little as USD 25 or less per month. When purchasing a fractional share, the investor essentially shares ownership of the security with other shareholders, with the broker managing the division. Stock savings plans are gaining popularity as they allow for the establishment of a diversified portfolio with a small capital outlay. Many brokers are therefore planning to expand their offering of securities that are eligible for stock savings plans.
Pros and Cons of Fractional Shares
Investors benefit from the ability to purchase expensive stocks at an affordable price and are entitled to dividends commensurate with their share of the stock. However, a disadvantage is the inability to transfer these fractional shares, which means that if you decide to switch to a different broker and transfer your portfolio, you will be required to sell all your fractional shares. Additionally, fractional shareholders do not have voting rights for the company’s annual general meeting.
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