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Make sure it’s something your account offers.
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To say that 2022’s stock market was rocky would be an understatement. At this point, many investors are still reeling from losses in their brokerage and IRA accounts. And we don’t know what 2023 has in store for the stock market.
A good way to protect yourself from losses during periods of stock market volatility is to diversify your holdings. This means investing in a wide range of stocks across different market sectors, as well as holding different asset classes.
But even in a less turbulent market, it’s still a good idea to own assets across different segments of the market. And one brokerage account feature makes diversifying even easier to do. So if you’re looking to open your first brokerage account, or to move your money into a new one, it pays to be on the lookout for a brokerage that offers fractional shares.
The upside of fractional investing
For years, investors who wanted to own stocks had to either wait until they could afford to purchase a full share at a minimum or pass on the opportunity. But nowadays, you can invest in the most expensive companies with limited funds thanks to fractional shares.
Fractional shares allow you to buy a piece of a share of stock rather than invest in a full share. In exchange, you get partial ownership and partial benefits. So, let’s say you invest in a company whose share price increases by $100 apiece. If you own half of a share, you’ll profit to the tune of $50. And if that company pays a quarterly dividend of $40, you’d get a $20 payment.
What makes fractional investing so valuable is that it can really set the stage for a nice, diverse portfolio. That’s because pricier stocks won’t necessarily be out of reach.
Let’s say you own a bunch of tech, energy, and healthcare stocks, and you decide you want to branch out into different market sectors. You may decide to invest in some restaurant stocks, and you might land on Chipotle. But at roughly $1,500 for a single share, that might be a stretch for you financially.
If your brokerage account, however, lets you buy shares on a fractional basis, you don’t necessarily have to spend $1,500 to buy Chipotle stock. You could instead buy a third of a share for about $500.
In fact, the danger in buying expensive stocks is tying up a lot of money in what could be a single share. But with fractional investing, you can spread out your money without having to pass on the opportunity to own the stocks you want.
Does your brokerage account offer fractional shares?
Fractional shares are a fairly new thing, and they’ve become more commonplace over the past few years. At this point, many brokerage accounts offer investors the option to buy fractional shares. But if yours doesn’t, you may want to think about moving your money somewhere else so you can better diversify your holdings and not take on too much risk with a single stock or company.
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