Fractional shares and how they can be used to empower everyday people when investing in the stock market. By allowing people to invest in smaller pieces of a company, fractional shares make it possible for more people to participate in the stock market, which can result in increased stability and a stronger overall economy.
What are the benefits of investing in fractional shares?
There are a lot of benefits to investing in fractional shares. By allowing people to invest in smaller pieces of a company, fractional shares make it possible for more people to participate in the stock market, which can result in increased stability and a stronger overall economy. In this article, we'll explore what fractional shares are and how they work.
If you wanted to buy an Amazon share, you would need to save a considerable amount of money to be able to buy one share of Amazon. However, if you could just buy a fraction of the company, then you'd be able to put your money to work today and tomorrow, and the day after.
The ability to buy fractional shares is more useful when you are buying dividend-paying stocks. How? Here is an example for Realty Income (Ticker: O).
Combining DRIP with Fractional Shares
Okay, here is a real-life scenario. Say you have 10 shares of O, which pays you monthly dividends with a 4% yield. This month I would have been paid $2.47 for the 10 shares I have. Given the value of the stock today, I would buy back ~0.03 shares this month. Next month, the same scenario would happen. Just like a snowball rolling in time my investments could get bigger and bigger.
If your platform supports Fractional Shares then excellent! You'd use this recipe and let your money roll.
Of course, I would add more funds to the equation. As your investment gets bigger, your dividends get more and more.
Something to Check
Some brokerages, however, charge you per transaction. Well, if you are anything like me you might be enjoying lots of transactions and flows around your account. Yes, I love to see the activity and try to get dividends almost every day. It also looks great with the T212Tracker calendar. It makes me feel happy to see greens every day on my calendar.
But, check what your brokerage charges you. My old brokerage did not support Fractional Shares and every time I bought something I was charged a whooping £12! I asked them numerous times to consider a new package.. well, of course, no response :) Then I moved to Trading212 where I can use the fractional shares and not get robbed on all my transactions.
Let's be fair, Trading212 changes you an FX fee but you can avoid it if you play clever. Which might be a different post topic.
Well, I hope you enjoyed the Fractional Shares and I believe you'd like to employ them in your investing toolbox.
Happy investing