One of the most common issues that many would-be investors face is the idea that they don’t have enough money to invest.
When looking at the share price of some of the most profitable companies, it can feel overwhelming. After all, how do you start investing if a share of Tesla (TSLA) is over $700 and even something as down-to-earth as the company that makes Samuel Adams beer (SAM) is selling for more than $1,000 per share?
The good news is that there’s a way. With the help of fractional shares, you can start investing with smaller amounts of money.
What are Fractional Shares?
Fractional shares are what they sound like — portions of stock. Rather than purchasing a whole stock, you can actually buy part of a stock. Only have $350 to invest? You can get half a share of TSLA, instead of waiting until you have enough to buy a full share.
Fractional shares allow you to purchase smaller chunks of stock, providing a way for you to add some of the most popular and expensive companies to your portfolio immediately.
It’s important to note that not every company offers fractional shares. However, if you use a broker that specializes in fractional shares, it’s possible for you to find the ticker symbols of companies that allow you to purchase fractions of stocks, and go from there.
Getting started is one of the most important things you can do for your portfolio and your future. Thanks to fractional shares, you can start investing in individual stocks for as little as $5 and start creating a portfolio that works for you. It doesn’t matter if you think you’re broke — you can still invest.
Where Can You Buy Fractional Shares?
Once you decide to invest in fractional shares, it’s fairly easy to find a place to buy them.
Some more traditional brokers, like Schwab and Fidelity, offer fractional shares. However, you can also access this type of investing through newer apps like Robinhood and Stash. Both of these apps allow you to buy fractional shares of individual stocks as well as partial shares of ETFs.
When signing up, you need to be prepared with identifying information, including:
- Social Security number
- Address
- Birthdate
- Bank routing and account numbers
Once you have that information filled in, and your bank account is verified, you can begin investing. With services like Stash and Robinhood, you don’t need to worry about account minimums, and you can buy shares with as little as $5.
At first, it might seem like that’s not a lot when it comes to investing and building your portfolio, but the reality is that even small investments can add up over time. As you buy more fractional shares and add them to your portfolio, you’ll grow your wealth and take advantage of any compounding returns.
Invest Consistently for Best Results
Anytime you invest, consistency is key. This is true of buying fractional shares. One of the best ways to build a portfolio using fractional shares is to set up an automatic investing plan that focuses on dollar-cost averaging.
If you don’t have a lump sum to buy whole shares, figure out how much money you can set aside each week or month for investing. Then, set up an automatic investing plan with your broker. Many brokerages will allow you to automatically transfer money from your bank account into your investment account on the same day each week or month. Then, you can use that money to automatically buy as many shares (or fractional shares) as possible with the money.
You end up automatically buying your preferred stocks, mutual funds and ETFs, without the need to think about it. That way, you keep building your portfolio over time. As your financial situation improves and you can increase how much you invest, you can update your automatic investment plan accordingly.
Don’t forget that you can also change your investing plan to better match your asset allocation as needed.
What About Robo-Advisors?
This automatic investment plan also works with robo-advisors. Many robo-advisors will allow you to buy fractional shares of the ETFs they use to create your portfolio. When you add money to your investment account, the robo-advisor automatically apportions it to the asset allocation you pick, usually dividing your investment between stock and bond ETFs.
Don’t assume that you can’t use a robo-advisor like Betterment. You can still use it to invest consistently and take advantage of fractional shares.
Bottom Line
Don’t assume you don’t have enough money to invest. Chances are that you can actually start investing using fractional shares. Begin building a portfolio now, and you can create future wealth and take advantage of gains over time.