By John Drachman
When it comes to math, most of us struggle with fractions. Scientific American reported only 25% can figure out “whether the sum of 12/13 and 7/8 was closest to 1, 2, 19, or 21.” (Answer at end of article.)
Luckily for investors looking to buy stock shares a slice at a time, an increasing number of brokerage firms are saying, “we’ll do the math for you.” Following Robinhood, Charles Schwab and Interactive Brokers, Fidelity Investments announced in January their plan to lower the investment bar to as little as $1 so clients can buy shares on a fractional basis.
Not long ago fractional shares were considered an administrative nuisance generated by stock splits or dividend reinvestment plans (DRIPs). Today, they might be the beginning of a beautiful portfolio.
- An antidote to “not much money” When Bankrate asked Millennials why they didn’t invest, the most popular response was “because we don’t have much money.” Buying a $650 share of Apple on a budget of $250 a month is prohibitive without access to fractional shares.
- Go ahead; make an impact. Fractional shares make sense too for investors concerned about Environmental, Social and Governance (ESG) issues. Whether you wish to explore opportunities in green technologies or improving corporate boards, fractional shares and Direct Index Investing can add legs to your cause. Stash, for one, lets customers invest fractionally the thematic way, by specific industry, cause, or strategy.
- Learn as you go Firms like Motif offer customers a robust array of information designed to build knowledge and financial literacy for honing a strategy and learning from other customers to construct a portfolio the investor can understand.
- A diversification strategy you can visualize With M1 Finance, you can build a portfolio using a tool called “The Pie” that shows exactly how your dollars break out by investment, as well as how to buy fractional shares to support your “Pie.”
- Building in a market shock absorber. Buying more fractional shares when the market is down and fewer fractional shares when the market is up – called “dollar cost averaging” – can be an excellent way to temper the impact of the markets’ fits and starts. Betterment, one the first of the major robo-advisors, helps automate this effort while keeping risk and reward within boundaries you set.
- Gifting a slice of “The Pie.” Stockpile offers a gifting feature that lets you either request stocks as gifts in a wish list or give a share of stock (or part of one) to someone special. Parents can link the account with a child’s account so they can track their performance and enter trades (with parental approval of course).
Firms may charge monthly membership fees, while others charge a fee per transaction. The right choice for you depends on your personal investment goals and needs.
Even if you’re an avid online do-it-yourselfer though you may want some help in validating your assumptions now and then. Fortunately, brokerage firms also encourage financial advisors to join their online platforms right alongside their clients to put this emerging boom in fractional shares trading to work for their portfolios.
The answer in paragraph one is “2.”
John Drachman is a contributing writer to MyPerfectFinancialAdvisor the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing dialogs between investors and investment professionals.