Investing Made Easy: Understanding Fractional Shares

Ever wanted to own a piece of a big company like Google or Apple, but their stock prices seemed too high? Well, there's a new way to get a foot in the door, and it's called fractional shares.

Think of it like this: imagine a delicious pizza. Instead of having to buy the whole pie, fractional shares let you buy just a slice – or even a tiny sliver! In the stock market, a fractional share represents a portion of a single company share.

Why are fractional shares a big deal?

For a long time, if a company's stock cost $1,000 per share, you needed to have at least $1,000 to invest in that company. This could be a barrier for many people who want to start investing with smaller amounts of money.

Fractional shares break down this barrier. Now, instead of needing $1,000 for one share, you could invest just $50 and own 0.05 of a share (that's 50 divided by 1000). This means you can:

• Start investing with less money: You don't need a large sum to begin building your investment portfolio.
• Diversify your investments: With a smaller amount, you can spread your money across shares of different companies instead of putting it all into just one or two whole shares.
• Invest in companies with high stock prices: Companies that might have seemed out of reach before are now accessible, even if you can only afford a small fraction of a share.

How does it work?

When you place an order for a fractional share through a participating brokerage platform, the platform essentially pools together these small orders from many investors to buy whole shares. Then, they divide these whole shares among the investors based on the amount they invested.

Where can you buy fractional shares?

You'll typically find fractional shares offered by modern, often zero-commission, online trading platforms. These platforms use technology to easily track and manage these small portions of shares.

Important things to remember:

• You still own a piece: Even though it's not a whole share, you still own a proportional part of the company. If the stock price goes up, the value of your fraction will also increase.
• Voting rights might be limited: Generally, owning a fraction of a share doesn't give you the same voting rights as owning a full share. Voting rights are usually tied to whole shares.
• Not all brokers offer them: While becoming more common, not every stockbroker or trading platform offers fractional shares. You'll need to check with your broker.

Limitations of fractional shares

There are some downsides to investing in fractional shares as well. Fractional shares can't be bought or sold on the open market. You can only purchase and sell these shares through participating brokerages. Fractional shares provide less investment or dividend income than full shares.

Do fractional shares retain voting rights?

Shareholders of fractional shares have voting rights. Their experience is identical to that of full share position holders. All votes of fractional shareholders are collectively pooled before being communicated to the company.

In a nutshell:

Fractional shares are a fantastic tool that makes investing more accessible to everyone. By allowing you to buy small pieces of a company's stock, they lower the financial hurdle to getting started and help you build a more diverse investment portfolio, even with a limited budget. So, if you've been curious about investing but felt priced out, fractional shares might just be the slice of the action you've been waiting for!