Whether you're new to investing or trying to build a solid portfolio over time, you're probably aware that some stocks may be out of your reach. Take Amazon (NASDAQ:AMZN), for example, which was trading at $2,479.72 per share the morning of June 4. That's a large sum of money to pump into your brokerage account at once, especially when you're first starting out.
Thankfully, stocks like Amazon don't necessarily have to remain too expensive to buy. That's because some brokerage firms are making it possible for everyday investors to buy fractional shares.
What are fractional shares?
As the name implies, fractional shares let you buy a portion of a share of stock rather than an entire share. Until now, the most common situation involving fractions of shares has been with companies offering dividend reinvestment or direct stock purchase plans. But now, you can buy fractional shares directly.
Specifically, both Charles Schwab (NYSE:SCHW) and Fidelity have introduced fractional shares to the masses, and more brokerages will likely follow suit. Trading app Robinhood also lets you buy them.
What's the upside of buying fractional shares?
The great thing about being able to buy just a fraction of a share of stock is that limited funds don't need to be a barrier to investing in the companies you want a piece of. Going back to our example with Amazon, say you have $200 you're looking to invest immediately. If you were to wait until you've saved enough to buy a full share of Amazon, you'd be waiting a while -- and missing out on the opportunity to grow your money. With fractional shares, you can buy that stock, or any other stock you're interested in, as soon you have some money to invest -- it doesn't have to be a lot.
As a result, it can be easier to diversify your portfolio when you can buy just a fraction of a share of many different stocks. Rather than limit yourself to lower-cost stocks that may not align with the investment strategy you're hoping to employ, you can instead spread your limited wealth around and load up on stocks from different market segments. This can not only lead to added growth, but protect you from extreme losses if one particular segment of the market takes a giant hit.
Won't I make less money with fractional shares?
Obviously, the more shares of stock you own, the larger your gains will be if the stock price climbs. But that doesn't mean your investment isn't worthwhile. To put it another way: Would you rather make some money off a company whose stock price is out of reach for buying a full share -- or no money at all?
Get in on the action
There was a time when expensive stocks weren't accessible to everyone, but now, you can build a more robust, diversified portfolio with a small amount of money and work your way up from there. If you've been putting off investing because you felt it was too expensive or you didn't have enough money to do it right, it's time to change that line of thinking. And the sooner you get started investing, the sooner you can begin to grow and build wealth that will serve you well for many, many years to come.