Fractional Shares

Introduction

What are fractional shares? Fractional shares are just what they sound like: They’re a fraction of a share (I know, I’m a genius). What this means is that if you don’t have enough money to buy one full share, you can buy a portion of it for a lower price. For example, at the time that this was written, Chipotle cost about $1600 per share. Holy guacamole. Say you have $100 to invest, but you really want to buy Chipotle. You can buy 1/16 of a share with that $100 (100/1600).

Importance

Notice how powerful fractional shares are! Chipotle is a very large and popular restaurant (as of 2022), but not everyone has $1600 to throw around. I know I don’t. However, fractional shares allow us to tap into this powerful company, even though we don’t have the money to buy a full share.

Drawbacks

Unfortunately, not everything can be completely sunshine and roses. There are a couple of minor downsides to fractional shares. One is that because most people trade full shares, it can be hard to sell a fractional share since you might not find people willing to buy 1/16 of a share of Chipotle. Fortunately, your online broker will do the hard work for you and merge your 1/16 with other fractional shares to get a full share, but this can take time. Another drawback is that not all brokers offer fractional shares. A popular one that doesn’t is E-Trade. Some great brokers that do offer them are Robinhood (great for beginners!) and Fidelity, so if you’re interested in trading fractional shares, consider using those. Bottom line is: Do your research!

Fractional ETFs

Fractional ETFs do exist, which is absolutely incredible! ETFs are a fantastic way to easily diversify your portfolio and hedge risk, so if you don’t have enough money to buy a full share of an ETF, the fractional share will be your best friend. The same caveats exist for these as for fractional shares for stocks. I’m sure you will be elated to hear that Robinhood and Fidelity both offer fractional ETFs (we love you Robinhood and Fidelity).

Conclusion

Fractional shares are an incredibly convenient and powerful tool, especially if you don’t have much money to invest. Even if you have just $1, you can invest it in strong companies to generate great returns.