Amazon (NASDAQ:AMZN) shares closed at $2,442.37 on May 29. With the Bureau of Labor Statistics reporting the median weekly earnings of full-time workers at $957 in the first quarter of 2020, the typical American would need to work more than two weeks just to get enough money to buy a single share.
But the good news is, you no longer need to have over $2,400 if you believe Amazon is a good stock to own and you want to buy in. In fact, you can buy Amazon stock for $5 or less. You can do that thanks to fractional shares.
How fractional shares let you buy into Amazon with almost no money
With fractional shares, you can buy a small portion of a stock share of any company, including Amazon or other businesses with expensive stock prices. In fact, Fidelity allows you to buy as little as .001 of a share, which means you could own a piece of Amazon if you had just $2.44 to invest.
While investors traditionally had to purchase whole shares, an increasing number of brokers now allow you to do dollar-based investing instead. With dollar-based investing, you specify the amount of money you want to invest in a stock such as Amazon, and you can buy as many shares as your purchasing power allows -- even if you can only buy part of one.
Some brokers, such as Fidelity, allow you to invest with as little as $0.01 as long as you're buying at least .001 of a share. Others require a higher minimum dollar amount but still let you get started with almost no money. Schwab (NYSE:SCHW), for example, will let you buy a portion of a share of any company on the S&P 500 with minimum investments starting at $5.
Brokers that offer these fractional shares typically charge no commissions on trades, either, as it wouldn't make sense to pay a fee to buy such a small amount of stock.
You'll make the same percentage gain as any other investor -- and take the same risks too
While investing a few dollars in Amazon won't get you a full share, you'll benefit just as any investor would if the company performs well. In fact, although the dollar value of your gains won't be the same as those with full shares, your percentage gains will be.
But it's important to remember that just because fractional shares allow you to invest with very little cash, you're still taking a risk with your money. And even if it's just $5 you're putting into the market, you don't want to lose it if you don't have to. That means that before you buy Amazon or any other stock, it's important to research the company, assess the leadership team and competitive advantages, and make sure there's good potential for the stock to perform well.
If you put in the work to act as a smart investor, fractional shares open up the door for you to buy shares in any company even if you don't have much money, rather than being limited to high-risk penny stocks. They provide a unique chance to invest in businesses like Amazon if you believe they'll stand the test of time. And they make it possible for you to grow your wealth because of it.