Understand Buying Fractional Shares: A Simple Guide for Everyone
Investing in the stock market can seem intimidating, especially if you're just starting out. With stocks like Amazon and Google trading at thousands of dollars per share, it might feel like you need a small fortune just to buy one share. But what if I told you that you don't need to buy an entire share to invest in your favorite companies? That's where fractional shares come in, and today, we're going to break it down so that anyone can understand.
What Are Fractional Shares?
A fractional share is exactly what it sounds like—a fraction or a portion of a whole share of a company’s stock. Instead of buying a full share, you can purchase a smaller piece of it. This makes investing more accessible, especially if you don’t have a lot of money to invest.
Imagine you want to buy a slice of pizza, but instead of buying the whole pizza, you just want one slice. Fractional shares work the same way. You don’t need to buy the whole share; you can just buy a piece of it.
How Do Fractional Shares Work?
Let's say a single share of a company costs $1,000, but you only have $100 to invest. With fractional shares, you can still invest in that company. Your $100 would buy you 0.1 shares. Over time, if the value of the stock goes up, the value of your fractional share will go up too. Conversely, if the stock price falls, your investment will decrease in value.
Fractional shares allow you to invest based on the amount of money you have, rather than the price of the stock. This flexibility is one of the biggest advantages of fractional shares.
Why Are Fractional Shares Important?
Accessibility: Fractional shares lower the barrier to entry for new investors. You no longer need a large sum of money to start investing in big-name companies. Whether you have $5, $50, or $500, you can start building your portfolio.
Diversification: Diversification is a key strategy in investing—it means spreading your money across different investments to reduce risk. Fractional shares allow you to diversify your portfolio even if you have limited funds. Instead of putting all your money into one company, you can spread it across multiple companies, even if you only have a small amount to invest.
Reinvestment: Fractional shares make it easier to reinvest dividends. If a company you own pays out a dividend that isn’t enough to buy a full share, you can still reinvest that dividend into fractional shares of the stock, helping your investment grow over time.
How Can You Buy Fractional Shares?
Many online brokerage platforms and apps now offer fractional shares. Some popular ones include Robinhood, Fidelity, Charles Schwab, and Stash. When you sign up, you can choose how much money you want to invest, and the platform will help you buy fractional shares accordingly.
For example, if you have $20 and want to invest in a company with a share price of $100, you can buy 0.2 shares. It’s that simple!
Things to Keep in Mind
While fractional shares are a fantastic way to start investing, there are a few things to keep in mind:
Not All Companies Offer Fractional Shares: Not every company’s stock can be bought as a fractional share. It depends on the brokerage you’re using and the stock you’re interested in.
Transaction Fees: Some platforms may charge fees for buying and selling fractional shares. Be sure to check the fee structure of your chosen platform.
Ownership and Voting Rights: Typically, owning fractional shares might not give you the same shareholder rights (like voting on company matters) as owning a full share would.
Conclusion
Fractional shares make investing more inclusive and accessible, allowing anyone to start building wealth, regardless of the size of their bank account. Whether you’re a seasoned investor looking to diversify or a beginner just starting out, fractional shares offer a great way to get a piece of the pie without needing a huge sum of money upfront.
So, if you’ve been hesitating to dip your toes into the stock market because of high share prices, consider starting with fractional shares. They’re a powerful tool that can help you take control of your financial future, one small step at a time.
Remember, investing is a journey, and every journey starts with a single step—even if it’s just a fraction of one. Happy investing!
Disclaimer: The information provided in this blog is for educational purposes only and should not be considered as financial advice. Investing in the stock market involves risk, including the potential loss of principal. Always do your own research or consult with a licensed financial advisor before making any investment decisions.
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LaKeisha LaGrande's entrepreneurial spirit started at a young age, when she began selling beepers and pagers door-to-door to businesses at the age of 16. Despite facing both the highs and lows of life, she persevered and used her financial expertise to help others. LaKeisha graduated from college with three degrees and went on to own and run a successful soul food restaurant at the age of 26. However, her personal life took a turn when she went through a divorce, leaving her to rebuild her life and financial stability with two children.
But LaKeisha didn't let her setbacks define her. She bounced back and became financially independent, even purchasing a home and paying it off within seven years. Her wealth of financial knowledge and experience led her to provide thoughtful solutions and resources to over a thousand people and small business owners, addressing their financial concerns in areas such as legal, life, health, Fire and Medicare Insurance.
LaKeisha's passion for entrepreneurship continued to burn brightly as she pursued her dreams of running a successful business. She earned two Bachelor of Science degrees in Finance and Computer Information Systems from Central State University and a Master's degree in Business Administration from Lawrence Technological University. On her journey to financial freedom, she obtained several licenses and worked for JP Morgan Chase, where she received top-notch financial training and earned her Series 6 and 63 licenses. LaKeisha enjoys working with the senior community, where she helps people navigate the complexities of business, insurance, and the financial industry.
In 2019, LaKeisha launched Natural Living by Design II, LLC, a certified 3 female family owned minority supplier company of health and wellness products, including liquid herbal extract supplements, powders, syrups, and a multi-functional natural crystal deodorant mist and more. Her business partners and she worked tirelessly throughout the pandemic, and their business survived, unlike many others. LaKeisha and her team successfully got their #1 selling multi-functional natural crystal deodorant mist into 20 local stores, mostly throughout the state of Michigan. LaKeisha tenacity and entrepreneurial spirit continue to inspire others, making her a true leader in the world of business and finance.
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