Some say the “fractional share” is a great way for those without a ton of money to try their hand at investing in individual stocks. But should you do it?

By Catey Hill
October 23, 2020
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If you’ve dreamed of owning a popular stock like Apple, Tesla or Berkshire Hathaway, but can’t afford the high share price, the “fractional share” might be just what you’re looking for. Here’s what you need to know.

What is a fractional share? Simply put: “It’s part of a share,” says Ellie Ismailidou, anchor of Marketwatch's video series "Explainomics.” In the past, the main way you could get a fractional share was if you owned a company’s stock, and then the company did what’s called a stock split—in which it divides its existing shares into more shares. But that’s changing, Ismailidou says. 

Today—instead of first having to shell out hundreds or thousands for a single share of a company or an exchange-traded fund (ETF)—you can directly buy a small part of the share or ETF for significantly less. Indeed, sometimes you can even get in on the action for $1. However, it’s important to remember that these are often just tiny slivers of a share. For example, Adam Grealish, the director of investing at Betterment, notes that Betterment's ETF portfolios can allocate stocks down to one-millionth of a share.

To clarify: Let’s say you have just $50 to invest and want to buy into Amazon. As of the publication date of this article, Amazon’s stock is priced at roughly $3,480 per share. That means you could get about 1.4% of one share with your $50 investment. 

How do I buy fractional shares? Fractional shares are now offered by a number of financial institutions—from big banks like Charles Schwab and Fidelity to personal finance and investing apps like Betterment and Albert. The process for buying fractional shares is often pretty easy: Open an account, put money in the account and buy. 

Should I buy fractional shares? Experts say they can be beneficial for people who don’t have the money to buy an entire share of a certain stock but want to try their hand at investing in individual stocks. Another perk is that you can often buy and sell these fractional shares without having to pay a commission when you do it, Ismailidou says. 

That said, it’s often best to consider investing in fractional shares only after you’ve taken care of the basics like building an emergency fund, paying off high-interest debt and saving for retirement, says Michaela McDonald, a certified financial planner at Albert. Plus, “there are risks to all types of stock purchases,” she adds, “and it’s hard to get a super diversified portfolio with only fractional share investing.”