There are two common reasons for fractional investing. One is that you have a limited amount of money to invest and the individual shares of stocks that you want are too expensive. The other, related, issue is that you want to diversify and don’t want to wait a year or two to purchase one share each of several stocks. In a world where individual stock prices have gone higher and higher, one option is to buy fractional shares. But, is fractional investing good or just a compromise? Today you can just as easily buy and sell fractional shares as individual shares and the benefits are the same (fractionally) as if you own individual shares. In fact, if you are in a dividend reinvestment plan, you have already been receiving fractional shares with your reinvestments.
What Is Fractional Share Investing?
Investopedia tells us that a fractional share is anything less than a full share of stock. Traditionally, fractional shares come from stock splits, dividend reinvestment plans, and other actions by a corporation. Until recently, fractional share investing was not available to investors. However, today a brokerage firm can “repackage” stock investments in order to provide a market for fractional shares. The advantages include better diversification and the risks include higher fees per individual purchase.
Is Fractional Ownership a Good Investment?
This brings us to the question, is fractional ownership a good investment? First of all, fractional ownership is not limited to buying stocks. It is a common approach to real estate investing. As with fractional investing for stocks, fractional investing for real estate lets you get into expensive investments with the capital that you have instead of being left out. Fractional ownership of vacation property lets you and your family enjoy locations that would otherwise be too expensive. And, when prices rise over the years, your investment can also appreciate.
Investing in Fractional Shares
If investing in fractional shares sounds like a good idea for you, where do you go, and how do you proceed? Although you have probably heard of Robinhood because they advertise a lot, there are more options. Here are a few, courtesy of Clark.
Acorns allows you to start for $1 a month, has no trading fees, and no minimums.
Bumped has no fees, no minimum investment, and, occasionally, free fractional shares.
Fidelity has no minimums or account fees, lets you in for as little as $1 a trade, and gives you access to more than seven thousand ETFs and stocks.
Robinhood has no commissions, fees, or minimum investment and lets you invest from your smartphone.
Schwab charges on commissions when you buy stocks and lets you buy fractional shares for as little as five dollars.
Stash allows you to buy shares of ETFs for as little as five dollars a month without commissions.
Stockpile offers access to more than a thousand ETFs and stocks for ninety-nine cents a trade without minimums, monthly fees, or a sign-up fee.
Is Fractional Gold a Good Investment?
When gold started the 1970s at $32 an ounce, there was no need for fractional gold investments. But, today, at about $2,000 an ounce, it has become popular. But, is fractional gold a good investment? The first answer is that gold may or may not be a good investment, depending on your timing. The other has to do with how you want to invest in gold. Gold ETFs track the price of gold without your having to store the shiny stuff. Fractional shares of a gold ETF let you into the gold market at a reasonable cost.
Fractional Trust Deed Investing
A trust deed is used in many states in place of a mortgage on property. For expensive properties, money may come from several sources. Any one individual has a fractional share of the trust deed. Fractional trust deed investing is secured by the property and can be a profitable way to invest. However, real estate investing has its own pitfalls and opportunities. Those who know the ropes generally do well and those who naively think that profits come easily often live to regret their investment decisions. The same applies to fractional trust deed investing.
Fractional Ownership Investment
Any fractional ownership investment gives you a partial share of an asset. This can include income sharing, priority access, usage rights, and lower rates. In the case of vacation properties, the benefits are similar to those enjoyed by timeshare owners. This sort of arrangement gets you into luxury cars, aircraft, and vacation homes for less than if you purchased the entire property. The drawback is that whoever is setting up the fractional ownership investment will typically take their profit off of the top. Thus, your return on investment will commonly be less than if you made the deal entirely on your own.
Stockpile Fractional Investing
For those who would like to get into stock investing but have very little capital, Stockpile fractional investing is one of the ways to go. These folks let you start out with investments of as little as $5 and give you access to more than 1,000 ETFs and stocks. Because there are no minimums or monthly fees, this is an easy way to dip your toe into the stock market. Their handy app lets you make investments directly from the internet and even make gifts of stocks to others.
The one question that folks interested in fractional share investing need to ask themselves is why not just diversify by purchasing shares in an ETF that tracks the S&P 500.
Is Fractional Investing Good? Slideshare version