How to Invest in High-Value Stocks When You Are Low on Money
Let’s say you don’t have the money to invest – maybe just a few hundred dollars – and you want to buy stock in a company as big as Amazon or Google. Unfortunately, individual shares of these companies can be worth thousands of dollars. This is where fractional stocks come into play: they allow you to buy only a small fraction of a company’s stock for much less money than the full price of a stock.
How do fractional stocks work?
Equity stocks are pretty simple: anything less than the full share of a publicly traded company or ETF is considered a fractional share. You will need to go through a broker to buy them and you may be charged additional service fees (Bankrate has a good list of recommended brokers here ). Fractional stocks are a great option if you really like the fundamentals of the company, but stocks are not available. Warren Buffett’s Berkshire Hathaway is a good example – most people cannot afford even one share, which is currently valued at $ 430,000.
Benefits of Investing in Fractional Stocks
- Easier Access to Blue Chip Stocks : Fractional stocks give you expanded access to in- demand stocks that have proven to be consistently winning over time.
- A Cheap Way to Diversify Your Portfolio: Fractional stocks can give you more flexibility to diversify your stock portfolio, even if you are short on money. They also give you more flexibility to fine tune the type of stock you want (for example, if you want to invest more money in various technology companies) or to adjust the level of risk.
- It’s easier to invest cash down to the last dollar: If your financial goals include investing a certain amount of money each month, fractional stocks make it easier because you are not tied to the exact price of the stock you buy.
Cons of Investing in Fractional Stocks
- The choice is limited: While fractional stocks can give you access to more stocks, many brokerages have restrictions on which companies you can invest in. However, this will depend on the brokerage company you use.
- They’re not easy to sell: fractional shares are harder to sell than full ones, and you probably won’t be able to transfer them to other brokerage companies.
- They can contribute to over-trading: Compared to simply investing in an index fund, investing in fractional stocks can encourage you to engage in short-term trading in individual stocks. This is a much more risky strategy than passive investing .
- Transaction fees can add up: Since trading fractional stocks contributes to more trading with less money, you may end up paying a higher percentage of transaction fees of the total purchase price of each transaction.