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Fractional shares are a relatively new product offered by online brokers that allow retail investors to own portions of publicly traded stocks.
Although they have been around for a few years, fractional shares have become a pillar of the growing retail investing landscape. Their current popularity could mean that they will stick around for a while.
One of the key benefits of fractional shares is that investors with small budgets can buy portions of big-ticket stocks like Amazon or Google without having to commit most of their money to a single company.
This article will provide you with a list of brokers that offer access to this innovative product so you can buy your favorite stocks regardless of your budget.
Although each broker gives them a different name, they are all essentially the same. However, some providers may offer only a limited number of stocks for purchasing fractional shares while others may facilitate tools, research, and systems that will help you in making an informed decision when investing in these instruments.
With more than $1 billion in assets under management, M1 Finance has become a popular platform through which retail investors can enter the market, possibly because the company offers its services for free.
One of the best things about M1 Finance is that you can either let their robo-advisor build a portfolio for you with a minimum deposit of $100 or you can build a portfolio yourself by buying multiple fractional shares in the companies you would like to invest in.
M1 Finance doesn’t charge a fee for buying or selling these shares and they also provide an ample selection of both stocks and exchange-traded funds (ETFs) for you to invest in. Read our full M1 Finance review to learn more.
Public calls itself a “social investing” platform due to its community-driven approach to investing.
The company, aside from acting as a broker by offering access to stocks and ETFs via fractional shares, has also come up with other interesting features such as a selection of investing themes for investors to pick from, the possibility of engaging and interacting with other fellow investors, and other cool add-ons designed to make the experience of investing much more rewarding and educational through collective wisdom.
Similar to a social media platform, users can follow each other and communicate through Public’s platform and share their portfolio holdings with the community and get feedback on their buy and sell transactions.
With Public, you can buy a fraction of any of the thousands of stocks and ETFs they have made available without paying a dime in fees. Read our full Public.com review to learn more.
Social Finance Inc., also known as SoFi Invest, was founded in 2011 and since then it has become a popular platform among the youngest generations of Americans who are becoming increasingly interested in building wealth and achieving financial freedom through investing.
The company currently has more than 1 million registered users and it provides both automated passive investing services and self-directed trading services, including the possibility of buying and selling fractional shares — which SoFi calls StockBits.
Users can buy as little as $1 in any of the stocks and ETFs they love through SoFi without paying any commissions. Additionally, SoFi provides access to cryptocurrencies – a popular financial asset among younger investors.
This particular offering differentiates the firm from others that don’t currently support those instruments and could easily lure crypto-supporters to join SoFi instead of other brokers. Read our full SoFi Invest review to learn more.
Fidelity Investments is one of the world’s largest financial services firms in the world with over $3 trillion in assets and millions of customers in the United States and overseas.
The company was founded more than 70 years ago and has become a pillar of the US financial industry, providing investors with access to the most innovative financial products including fractional shares — which they call Stocks by the Slice.
Similar to other brokers on this list, investors can choose to enroll for the firm’s automated passive investing services, known as Fidelity Go, or sign up for Fidelity’s DIY self-trading program, which allows them to purchase as many Stocks by the Slice as they need with no minimum deposit required to open an account.
According to this provider, investors can buy as little as $1 in any stock they like and their list of available instruments includes around 7,000 different US-listed stocks and ETFs. Read our full Fidelity review to learn more.
Robinhood is best known for popularizing investing among young Americans as the company adopted an easy-going approach that includes some degree of gamification and access to cheap leverage and instantly-cleared deposits.
Founded in 2013 by two former high-frequency traders, Robinhood offers access to fractional shares for any stock that has a market capitalization above $25 million and a price tag above $1 per share.
No minimum deposit is required to open an account with this provider and you can buy and sell these instruments without paying a dime in commissions.
Moreover, Robinhood offers other cool features such as instant deposits, which allow the user to immediately invest the funds she has deposited into the account without waiting for the usual one to two business days required to clear the funds. Read our full Robinhood review to learn more.
Schwab is best known for being one of the first discounted brokerage firms on Wall Street and possibly the first to introduce online brokerage services. Since then, the firm has become a financial powerhouse with over $3 trillion in assets under management and a strong voice in the global financial landscape.
Schwab joined the crowd in launching fractional shares in 2020 and they call them Stock Slices™. According to its website, the program only supports the stocks listed within the S&P 500 at the moment. Meanwhile, the minimum amount that can be invested into each stock is $5.
Schwab does not charge any commissions for trading these instruments and they offer the possibility of either enrolling for its automated passive investing solution – Schwab’s Intelligent Portfolios – or users can also sign up for their self-directed trading solution to build a portfolio without professional assistance. Check out our full Charles Schwab review to learn more.
Betterment has become the go-to robo-advisor for millions of Americans, currently overseeing more than $16 billion in assets and partnering with top-notch financial services firms including Goldman Sachs and Blackrock to offer pre-designed portfolios to better serve their growing user base.
The difference with Betterment is that they are a pure-play automated passive investing platform, which means that users don’t have the chance to build portfolios without the assistance of the robo-advisor by using the company’s platform.
That said, Betterment uses fractional shares to purchase all the exchange-traded funds (ETF) required to build the portfolios they recommend. Aside from the expenses charged by the ETFs they invest in, the company charges a 0.25% annual percentage fee on the assets it manages while that fee goes up to 0.40% for premium customers whose balance exceeds $100,000. Read our full Betterment review to learn more.
Stash is the exact opposite of Betterment, as the firm can be considered a pure-play fractional shares provider. Founded in 2015, the company has attracted more than 5 million investors to its user-friendly investing solution while it sees itself as a one-stop-shop for all things money management.
Stash allows investors to purchase as little as $1 in any of the thousands of stocks and ETFs supported by its platform while charging a monthly subscription fee for using the service. Fees start at $1 per month.
Moreover, the company offers personalized advice for customers who sign up for their Growth or Stash+ package and they also offer rewards in the form of fractional shares for those who use the company’s Stock-Back® debit card. Read our full Stash review to learn more.
Interactive Brokers is a long-standing brokerage firm that oversees more than $313 billion in assets for over 1.2 million investment accounts from customers in and outside the United States territory.
IB is a publicly traded company and has been in business for more than 40 years, which gives it an extra level of credibility. Aside from offering access to thousands of different complex financial instruments such as stock futures, commodity futures, precious metals, and forex pairs, the company also allows its users to trade fractional shares.
At the moment, IB offers access to all the stocks listed on the NYSS, AMEX, NASDAQ, ARCA, and BATS exchanges and also to some OTC US-listed instruments as long as they have a daily trading volume higher than $10 million and a market cap above $400 million.
Trading fees with this provider for IBKR Lite customers start at $0.005 with a minimum order of $1 per trade. Read our full Interactive Brokers review to learn more.
Stockpile is an online broker that offers access to fractional shares for more than 4,000 different US-listed stocks and ETFs through a user-friendly platform and an easy-going approach to investing.
Although less popular than most of the names included in this list, the company is a member of SIPC and it is a regulated entity based in the United States (in case you are worried about safety).
One of the most distinctive features offered by Stockpile is the possibility of buying fractional shares by using a credit or debit card – payment methods that are not commonly supported by traditional brokerage firms.
Moreover, the company does not charge any fees for trading fractional shares through its platform. However, trades are not executed immediately in most cases and price quotes often have a 15-minute delay, which means that the price indicated by the system once you buy the security might not be the one you’ll end up paying.
Fractional shares are without a doubt a great product that helps democratize access to the financial markets for retail investors with a small budget. With so many attractive stocks priced at thousands of dollars per piece, fractional shares are an avenue through which these investors can build diversified portfolios of the best stocks in the world without having to worry about whether they can afford it.
Meanwhile, the fact that most brokers charge no commissions for trading fractional shares alleviates the burden imposed by high fees on the overall return that these investors can produce over time.
In short, the pros of fractional shares are:
- People have the flexibility to start investing in stocks and ETFs with very little money;
- Fractional shares allow investors to purchase any stock they want irrespective of the value;
- Even if an investor doesn’t have a lot of money to put into the stock market, they can still benefit from dollar-cost averaging; and
- Allows investors to build a truly diversified portfolio with a relatively small amount of capital.
One of the downsides of fractional shares is that, in most cases, those who hold them have no right to exercise their vote on the company’s Annual Shareholders Meeting (ASM). These votes are cast by the custodian of the stock of which you own a fraction.
Meanwhile, the number of stocks and ETFs supported for purchasing fractional shares varies from one provider to the other so you should do your research to select a broker.
Finally, there are liquidity risks associated with holding fractional shares as you may not be able to immediately dispose of your portion of a stock at the quoted price. Most brokers wait until they have accumulated enough fractional shares to sell a round number of stocks of a single company.
In short, the cons of fractional shares are:
- If not careful, investors run the risk of incurring a lot of broker fees;
- Since fractional shares are relatively new, a lot of brokers don’t offer them yet;
- Some brokers don’t support fractional share trading on premarket or after hours; and
- You may not be entitled to dividends if your ownership of a particular stock is too small.
Do you still have questions about fractional shares? Here are some answers to the most frequently asked questions we get on the topic.
Fractional shares are in essence a portion of a stock. Brokers buy a certain number of stocks of a single company and allow users to own a fraction. This helps facilitate access to those who don’t have the budget to build a diversified portfolio of big-ticket stocks.
Fractional shares are bought either as a fixed amount of money or by stating the exact size of the portion of the stock that the investor would like to possess. Most brokers allow users to buy fractional shares in both stocks and exchange-traded funds (ETF) and, in case the company distributes a dividend, the holder of a fractional share will receive the portion that corresponds based on the percentage of the stock that s/he holds.
In terms of value, a fractional share is no different than the stock itself. The only difference is the percentage of the company that the investor owns. In this regard, the intrinsic value of a fractional share corresponds to that of the underlying business itself as determined through fundamental analysis.
If a company distributes a dividend, the holder of a fractional share will be entitled to receive the amount that corresponds to the percentage of the stock s/he owns.
In case there is a stock split, the current fraction of the stock that the investor holds will be divided in proportion to the split. For example, if a company is doing a four to one stock split, that would mean that the holder of one stock will receive four in exchange and the price of the instrument will be divided by four as well.
The same applies to a fraction of a stock. For example, if you hold 0.50 of one Apple (AAPL) stock you will get 0.50 divided by 4, which results in 0.125 of the stock post-split.
Yes. Even though most exchange-traded funds trade under $100 per share, most brokers offer the possibility of buying a fraction of an ETF in case your account balance is very low and you need to buy portions of these instruments to build a diversified portfolio.
Yes. Fractional shares are completely legal in the United States and they existed prior to the recent boom. There are two instances in which fractional shares were used in the past by brokers. The first one was in the event of a stock split, as those who held a number that, upon being dividing by the number of new shares to be issued, resulted in a decimal number.
Moreover, fractional shares were also purchased by investors as part of a dividend reinvestment plan, also known as DRIP. Since dividends commonly represent just a tiny bit of the stock price, under a DRIP scheme the investor would only be able to buy a fraction of a stock with the dividend he has received.
Yes. Fractional shares can be bought and sold in the same way as any other instrument. However, keep in mind that execution times might be slower when trading fractional shares depending on the broker.
Some providers wait until they have enough orders to execute a transaction that involves buying or selling a round number of stocks in a single company rather than processing every transaction immediately after the order is received.
Fractional shares are an innovative vehicle through which retail investors can easily build a diversified portfolio of multiple stocks and ETFs by buying only a portion of the different instruments they would like to incorporate.
If you would like to start trading fractional shares, the brokers and financial services firms within this list will provide you with access to these instruments whether you want to let them build a portfolio for you or if you prefer to do the work yourself.
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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.