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Fractional stock investing
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Tiers apply. Why might investors buy fractional shares? Want to buy more than one share? To build a diversified portfolio Some of the most popular stocks today are also some of the most expensive. Building a well-diversified portfolio consisting of just a few shares of each could require tens of thousands of dollars in upfront capital.
With fractional shares, you can allocate a certain amount of your money toward each company you want to invest in. Whole shares are typically easily transferred, but any fractional shares may have to be sold so you can transfer the resulting cash. Depending on your situation, this could come with tax implications, fees or other unforeseen costs. But the reality is that actively buying and selling stocks is rarely a better strategy than buying and holding for the long term.
Yes, you can buy fractional shares of dividend stocks, but the amount you receive in dividends will be proportionate to how much of the share you own. If you own 3. Still confused? He educates business students on topics in accounting and corporate finance.
Outside of academia, Julius is a CFO consultant and financial business partner for companies that need strategic and senior-level advisory services that help grow their companies and become more profitable. 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.
Key Takeaways A fractional share is a portion of an equity stock that is less than one full share. Fractional shares often result from stock splits, which don't always result in an even number of shares. Mergers or acquisitions create fractional shares, as companies combine new common stock using a predetermined ratio.
Capital gains, dollar-cost averaging, and dividend reinvestment plans often leave the investor with fractional shares. Fractional shares don't trade on the open market; the only way to sell fractional shares is through a major brokerage. Understanding a Fractional Share Fractional shares come about in a number of ways, including dividend reinvestment plans, stock splits, mergers, and acquisitions.
A dividend reinvestment plan is a plan in which a dividend-offering corporation or brokerage firm allows investors to use dividend payouts to purchase more of the same shares. As this amount "drips" back into the purchase of more shares, it is not limited to whole shares.
Reinvesting capital gain distributions and dollar-cost averaging programs can also result in purchasing fractional shares. Stock Splits Stock splits don't always result in an even number of shares. A 3-for-2 stock split would create three shares for every two shares an investor owns, so an investor with an odd number of shares would end up with a fractional share after the split.
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Build a Balanced Portfolio with Fractional Shares!
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Why might investors buy fractional shares? Want to buy more than one share? To build a diversified portfolio Some of the most popular stocks today are also some of the most expensive. Building a well-diversified portfolio consisting of just a few shares of each could require tens of thousands of dollars in upfront capital.
With fractional shares, you can allocate a certain amount of your money toward each company you want to invest in. Whole shares are typically easily transferred, but any fractional shares may have to be sold so you can transfer the resulting cash. Depending on your situation, this could come with tax implications, fees or other unforeseen costs. But the reality is that actively buying and selling stocks is rarely a better strategy than buying and holding for the long term.
Yes, you can buy fractional shares of dividend stocks, but the amount you receive in dividends will be proportionate to how much of the share you own. If you own 3. Still confused? Learn more about how stock splits work here. If handled correctly, fractional share investing can recreate this type of diversification, while giving the investor more power to decide what their portfolio looks like; you can not only handpick which companies you want to invest in but also how much you want to invest in each one.
For example, maybe you are a big fan of a high-value e-commerce company. You recognize that this may be a riskier investment, but you believe in the future of the business and decide to buy a fraction of a share. To compensate for the potential risk, you may look to buy a slice of a more mature company with a longer, more stable track record. In this way, you can curate your portfolio based on your risk tolerance and personal preferences — all within your custom budget.
Buy what you know and love A lot of people are passionate about the brands they use day in and day out; the more we consume a brand the more comfortable we feel with the product and business model. When people approach the stock market, their first instinct is to invest in something they know and love, but sometimes what we know and love is just too expensive.
If your favorite brands or products are highly priced on the stock market, consider buying a slice instead of a whole share. Fractional investing gives you the opportunity to invest in the things you love, for less. A hands-on approach to learning As mentioned earlier, the stock market can be intimidating and some people are looking for a low-risk way to get their toes wet. Fractional share investing is the perfect way to get some skin in the game without putting your life savings on the line.
Reading about investing online or in school is very theoretical, which is why it often takes participating in it to fully understand it. So if you find the stock market hard to understand and you are scared to dive in, fractional investing may be a great way to enter the game.
It is a perfect low-risk, hands-on approach to understanding the world of investing. Remember, investing is integral to increasing your wealth over time. Any investment, no matter how small, is a step in the right direction. How to trade fractional shares Some people may worry that only owning a portion of a share will remove some privileges that come with certain stocks such as dividends, or cash and stock payouts. This is not the case.
As a fractional share owner of a dividend-paying company, you will still be entitled to the dividend payout. Your payout will simply be proportional to the amount of the share you own. This also applies to gains and losses on your fractional share. If you sell your fractional share at a higher price than what you bought it at, you will receive equivalent proceeds.
There are some conditions and limitations on trading fractional shares. For more information, check out our Fractional Shares Disclosure. Public makes fractional share investing fee-free and available for many companies and ETFs.
On the platform, you can keep track of your investments and share your interest in certain companies with a community of like-minded people. Bottom line Fractional investing has democratized the market and Public makes owning your favorite companies easier than ever before. The investing technique makes diversification affordable and customizable, which is attractive for young or first-time investors. Use fractional share investing to put investment concepts to practice and put your cash to work.
By Courtney St. James Courtney is a freelance writer and finance professional based out of New York City. You can connect with her on Twitter at CourtSaintJames. The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such.
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