The best part of birthday parties is the time for cake. Some people ask for just one small piece, while other sugar-craving folks may opt for two or more bigger pieces. The point is that everybody gets to eat some delicious cake. Did you know that is possible within the stock market as well? Just as a birthday cake, the stock of a big important company can get split into smaller pieces to make it more accessible to everyone. These tiny pieces are called fractional shares.
What are fractional shares?
People usually think that you need a huge bag of cash to invest in the stock market. That’s not really the case. Fractional shares are exactly what their name suggests, portions of a whole stock that help small investors get access to financial markets with a low budget.
Let’s look at it through an example…
Let’s say you’re looking to buy stocks of a big tech company. After checking some data and looking at the $650 price per share, you realize that unfortunately you don’t have enough cash. There’s when fractional shares come into the scene.
Given that you’re using an investing platform that allows it, you can buy small pieces of that same stock. In this way, instead of paying $650 all at once, you can become a proud shareholder of the great Techo-Company Inc. with just $20, $10, or whatever your budget allows within the required minimums.
What happens with shareholder benefits?
What would be the point of buying some fractional shares if you wouldn’t be able to enjoy some shareholder benefits, right?
Fractional shares work the same way as a whole stock. This means that, by acquiring some, you become one of the shareholders of the company. You’ll receive all the same benefits, according to the size of the portion of the company you now own through your shares.
For instance, say you bought a fractional share with $10, whose whole stock has a market price of $100. In case the company pays dividends to its shareholders, you’ll receive 10% of a common dividend. Awesome, isn’t it?
Should I invest in fractional shares?
It is important to keep in mind that the profits from an investment will always be relative. In other words, if the price of a stock goes up by 5%, you’ll gain 5%, no matter if you have a tiny fractional share, or 20 whole shares.
Taking this into consideration, we can assume that fractional shares are a great option if you are looking to invest on a budget. This will not only allow you to make good use of your savings, but also help you gain some experience in the market so you can make greater investments over time.
Another great reason to invest in fractional shares is that they help you diversify your investment portfolio. By having to pay a lower price for each fraction, you can buy fractional shares from several different companies with the same initial investment instead of putting it all in just one.
For example, instead of investing $100 in just one healthcare company, you can divide that money and invest $20 in a food company, $30 in a clothing company, and the remaining $50 in that healthcare company. In this way, your money is distributed in different investments and the risk of losing all your funds will be lowered.
How to invest in fractional shares?
Fractional shares were designed with the sole purpose of helping small investors. However, not all brokerage companies offer access to them, unfortunately.
The good news is that nowadays you can easily invest in fractional shares through digital platforms. One of the simplest and safest options is FlexInvest. After opening your account in a matter of minutes, you’ll get access to hundreds of the largest companies in the world and the chance to invest in them with as little as $5.
Before you go buy your fractional shares, make sure to check the rest of our articles. You’ll find some investing tips and strategies to help you make the best decisions along your journey.
