A fractional share is simply a certain percentage or portion of a single share. If you do not want to buy one or more full shares, you can buy a fractional share.
In the past, it was only possible to own fractional shares if the company you were invested in had gone through a stock split. Today, however, large brokers like Ejinvesting allow their clients to purchase fractional shares.
This means that traders can now be more specific about the money that they want to invest in particular stocks. If you want to invest in a company but do not have the funds to buy a full share, you can buy a fractional share instead. For instance, if your chosen company has a share price of $200, but you can only invest $50 at a time, you can buy 0.25 shares instead of a complete share.
Holders of fractional shares are treated exactly the same as full-share investors. A fractional-share holder makes the same percentage gains (or losses), is eligible for the same percentage dividends, and has the same ownership rights.
Fractional shares can also be sold in the same way as full shares: all you need to do is place a ‘sell’ order with your brokerage, and you will be able to sell your fractional shares at the prevalent market price.
Benefits of Fractional Shares
More Investment Options
Before fractional shares became mainstream, investors with limited funds could only buy penny stocks. These companies are not established or well-known, which means that penny stocks are generally subject to high risk and not very good long-term investments.
With fractional shares, however, it is now possible to buy a piece of pretty much any publicly-traded company, including some of the biggest names that trade for over $500 a share. In other words, regardless of your investable amount, no company is out of bounds for you. This means that you can invest in companies that interest you or in those that you feel have the best long-term outlook.
Higher Diversification at Lower Costs
You are probably aware about the concept of diversification, which is about apportioning your investment amount across a number of different companies and industries. With fractional shares, diversification has become considerably cheaper, since you do not need to have huge investable funds in order to be able to invest in multiple companies. For instance, even with an investable amount of $30, you can use this money to buy fractional shares for six different companies, at a price of $5 per fractional share.
Having said that, no investment is risk-free, and this is also true of fractional shares. In fact, the ability to invest smaller amounts might incite new traders to take the plunge into the market without conducting their research or performing due diligence. Moreover, buying fractional shares is still riskier than investing in mutual funds.
However, fractional-share purchases also put you in a better position to beat the market. As a matter of fact, as long as you have a solid investment strategy and are willing to put in the time to pick individual investments and create a diversified portfolio, the option to buy fractional shares actually puts you in a better position to outperform the market than if you could only purchase whole shares. This is because, with fractional shares, you can invest in whatever companies you feel will perform the best, without having to worry about the per-share price of those companies.
Of course, you should compare the risks and benefits of every investment before putting your money into the market. However, in general, fractional shares are a good addition to any investment portfolio.
Buy Fractional Shares with Ejinvesting
Fractional shares are an excellent way to invest in stocks that you feel are the most aligned with your short-, medium-, and long-term investment objectives. If you are looking for a brokerage firm with a wide range of stocks, no commission on fractional share purchases, instant deposits and timely withdrawals from your trading accounts, and premium customer service, we strongly recommend going with Ejinvesting
To learn more about the firm and the numerous ways in which it benefits its clients, please feel free to check out the Ejinvesting website.
Disclaimer: This is a sponsored marketing content.