Have you ever desired to own shares of your most admired corporations? But you cannot afford to because the price of the stock is way too high out of your reach? Good news is that with little investment, you can own fractions of these shares and enjoy the benefits every other shareholder enjoys. In this post, I’ll show you how to invest in fractional shares and use it build the wealth that you desire.
Fractional shares allows you to own a portion of a single share, making it more accessible and affordable for micro investors like you to participate in the stock market. Fractional shares investing is an innovative approach to investing in the stock market which has opened up doors for individuals with limited funds to invest in companies they admire, and potentially reap the benefits of wealth creation.
Before we delve into how to invest in fractional shares, let’s first understand what they are
Normally, those who buy company shares are required to buy in whole units. Thus, if a particular company share is trading at $500 per share and you have only $50; you cannot buy that share. You must wait until you have $500 just to buy a unit of that company’s share.
But with the emergence of Fractional shares, you can buy 0.1 unit unit that your $50 can afford. consistently acquiring fractions of the shares over a period of time, many small time investors may now own some good quantity of fortune 500 companies.
So, fractional shares represent a partial ownership of a single share, meaning you can invest any amount you desire, regardless of the share price. Instead of owning a whole share, you own a portion of it, which is proportionate to the amount you invest.
Thus, with as little as $1, you can buy the shares of your most admired company.
Brokerage firms, working in conjuction with investment platforms, facilitate transactions in factional shares. These platforms pool together money from small time investors to buy whole shares on their behalf. The ownership of these shares is then divided among the investors based on the amount they have invested.
For example, if you have $5 and want to invest in a stock that costs $500 per share, an investment platform that offer fractional share investment will enable you to own 1/10th of that share. This fraction will still fluctuate in value based on the performance of the stock, similar to owning a whole share.
You can say that it is similar to investing in mutual funds. This is to the extent that the invesment platform pools monies together from different investors to buy the shares in whole. Thereafter distributes the shares to the different investors in proportion to their investment in monetary terms.
However, fractional shares investing differs from mutual funds in that the holders of fractional shares are direct shareholders. Unlike in mutual funds where the investors only hold units in the fund.
Here are just a few of the benefits fractional shares offer retail investors.
Accessibility
It makes investment in stock market accessible to retail investors with limited funds and allow them to own shares of big corporations. Fractional shares have made it possible for just anyone to own shares of companies like Google, Microsoft, Amazon and Tesla, for example. It opens up investment opportunities that were previously out of reach for many.
Diversification
Fractional shares enable investors to diversify their portfolios by spreading their investments across different companies, even if they have a small amount of capital. This diversification can help mitigate risk and potentially increase returns.
Dollar-cost averaging
It is easy to invest a fixed amount at regular intervals, whatever the share price is. This way an investor is able to accumulate more shares at lower prices and vice versa. And over all, buying shares in such installments leads to a lower average cost per share.
Reinvestment of dividends
Investors are able to re-invest dividends easily. Because the dividend on fractions of a share will be small anyway, so it is easy for the investor to re-invest it rather than cash the divident. Regularly re-investing dividend helps the investor to acquire more shares over time.
Flexibility
Fractional shares offer flexibility when it comes to portfolio management. Investors can buy and sell fractional shares at any time, allowing for more control and agility in adjusting their investment positions.
Having read this post to this point, you may be enthusiastic about how to get stared. Here’s how to invest in Fractional Shares.
Educate Yourself
Generally, it is important that you gain some knowledge before you start investing in stocks. The same rule applies to fractional shares. Gain some knowledge about the stock market, investment strategies, and the concept of fractional shares. Understand the risks involved, market dynamics, and fundamental analysis to make informed decisions.
Choose a Reputable Brokerage or Investment Platform
As we identified in previous paragraphs, investing in fractional shares is made possible by brokerage firms and investment platforms.
Therefore, a critical step to your success is selecting a brokerage firm or investment platform that offers fractional shares. Look for a platform that aligns with your investment goals, provides a user-friendly interface, and offers a wide range of stocks to choose from. Popular platforms that offer fractional shares include Robinhood, Charles Schwab, Fidelity, and many more.
In Africa, some of the investment platforms that offer incredible access to Africans to invest in the US market through fractional shares include: Bamboo investment, Yochaa, Trove, Chaka and Risevest. Chipper Cash, a cross border payment servicess provider, also offer facilities for their users to invest in US stock market through fractional shares.
Determine Your Investment Budget
Assess your financial situation and determine how much you can allocate to investing in fractional shares. Remember, it’s essential to invest money that you can afford to put at risk without affecting your daily life or emergency savings.
Research and Select Stocks
The importance of research in stock market investing cannot be over-emphasized. This is also true for fractional shares. You have to thoroughly research a stock before investing in that stock whether you are a buying in whole or in fraction.
You have to understand how to read a company annual reports and accounts, conduct fundamental and technical analysis, understand trend and assess financial perfofrmance of a company. It is very important to look for companies that you believe in and have a long-term growth trajectory.
Create a Diversified Portfolio
Consider diversifying your investments across different companies, sectors, and asset classes. By spreading your investments, you can mitigate risk and potentially increase your chances of earning favorable returns.
Fractional shares allow you to diversify even with limited funds. Analysts and financial advisers recommend that an ideal diversified portfolio should have about 25 stocks.
Start Small and Gradually Increase
Start by investing a small amount in fractional shares and do this regularly over time. As you gain confidence and experience, gradually increase your investment size. This approach allows you to learn and adjust your strategy without exposing yourself to excessive risk.
Implement a Long-Term Strategy
Investing generally is not a get rich quick affair. So, it pays to develop and maintain logn term mindset even with fractional shares. In other words, do not expect to make a kill within a short time simply by investing a few dollars in stocks. Wealth creation takes time and requires careful strategy.
And v ery importantly, don’t get carried away by the little gains you make in a short time market fluctuation. Also, avoid timing the market. Instead, focus on companies with solid fundamentals and a long-term growth outlook.
Practice Dollar-Cost Averaging
We have earlier identified dollar-cost averaging as an advantage fractional share investing offer to investors. Make use of it.
Implement dollar cost averaging by investing a fixed amount regularly regardless of the share price. This strategy helps smooth out the impact of market volatility and allows you to accumulate more shares when prices are lower.
Monitor and Rebalance
Review your portfolio regularly and make adjustments where needed. Such adjustments may entail selling off some of your holdings and buying more of others or introducing new stocks to the portfolio.
Keeping your eye on market news, company announcements, economic and industry developments will help you understand your portfolio behaviour more. Rebalance your portfolio periodically to maintain your desired asset allocation.
Stay Informed and Seek Professional Advice
Update yourself with market news by reading the financial pages of business newspapers and economic journals. Also subscribe to investment insights published by brokerage houses and financial professionals. Follow reputable financial publications, join investment forums or communities, and consider consulting with a financial advisor for personalized guidance based on your specific financial goals and circumstances.
Final Words
Fractional shares have revolutionized the investment landscape by making it possible for individuals with limited funds to participate in the stock market and potentially accumulate wealth over time. The accessibility, diversification potential, and flexibility offered by fractional shares empower investors to take control of their financial futures.
However, it’s essential to conduct thorough research, choose a reputable brokerage or investment platform, and understand the risks associated with investing before venturing into the world of fractional shares. With careful consideration and a long-term investment mindset, fractional shares can be a valuable tool in building wealth.
Remember, building wealth with fractional shares requires patience, discipline, and a long-term perspective. It’s important to continuously educate yourself, adapt your strategy as needed, and stay committed to your investment plan. Over time, the power of compounding and prudent investment decisions can potentially help you achieve your wealth-building goals.
