Exciting new investment opportunities don't come along every day, but fractional shares are one of them. Fractional shares aren't a new asset you can buy, but instead are a new way to invest. While you previously had to purchase whole shares of stock if you wanted to own a piece of a company, fractional shares change that.
Also called dollar-based investing, this new method of buying stock allows you to specify how much money you want to invest in a particular company rather than how many shares you want. And if the money available to you doesn't happen to be enough to buy a full share, it doesn't matter. Some brokers allow you to buy as little as .001 of a share or to invest with as little as $0.01 so you can buy part of a share in any company you'd like.
There are plenty of benefits associated with investing this way, and two big reasons that now's a good time to try it.
1. More brokers are offering fractional shares
When investors were first provided with the opportunity to buy fractional shares directly, it was through small online start-ups such as Robinhood. Some investors shied away because they wanted to stay with a larger, more established online broker or because of concerns that if they wanted or needed to switch to a bigger brokerage firm, it wouldn't accept their partial shares.
But that's begun to change as more major brokerage firms offer the chance to engage in dollar-based investing. Interactive Brokers Group, Inc. (IBKR -0.12%) began allowing fractional share trading in November of 2019, breaking the ice among major online brokerages. Fidelity followed suit at the end of January 2020, and Charles Schwab (SCHW 1.04%) began offering investors the option to buy "stock slices" at the beginning of June. Others will likely jump on the bandwagon soon enough.
Since you're no longer restricted to niche brokers if you want to buy partial shares, it's easier than ever to add them to your portfolio.
2. You can get money into the market for less
Coronavirus has left many people with less money to invest and has caused others to shift their priorities to emergency savings rather than getting their money into the market. And that's understandable during these troubled times.
But with fractional shares, you don't need thousands or even hundreds of dollars to buy stock. In fact, with Fidelity, transactions as low as a penny are permitted. That means even if you're struggling a bit, you can still make some progress on financial goals or take advantage of buying opportunities, investing only what you can still afford.
Don't pass up the chance to invest in fractional shares
Fractional shares have become popular at the perfect time because they make it possible to get a little bit of money into the market without having to commit to making big investments.
If your basic needs are met, you've got some emergency cash, and you have a few spare dollars, why not give dollar-based investing a try? Your fractions of a share could help you build wealth over time even if you're starting small.