Investing can be really easy if you just buy index funds and leave your money alone. But for many people, opting for the easy way isn't the goal. Instead, you may want to try to beat the market by investing in shares of individual companies you believe are poised to do well. That takes effort, as well as a willingness to assume a little more risk.
Fortunately, if you're hoping to buy individual stocks, you now have a new option that can help you become a better investor while reducing your chances of big losses: buying fractional shares.
Fractional shares can help you become a better investor in three key ways, whether you're just getting started or have been buying stocks for a long time. Here's how.
1. You aren't limited to buying cheap stocks
When brokers limited you to buying full shares, your choices were limited based on how much money you had.
Now, thanks to fractional shares, you can buy pretty much any stock you want. Just specify how much money you want to invest in it and it's yours -- even if you can buy only part of a share. You'll make the exact same percentage gain as other investors with full shares, but you can buy in with just a few dollars.
2. You can diversify easily
When you're limited to buying full shares, diversification is expensive. You may have to save up a lot of money to buy a particular stock or ETF that gives you exposure to a specific asset class or market sector. If you only had a bit of cash to start investing with, you might have to bet it all on one investment until you're able to save up enough to buy a second.
With fractional shares, you don't need much money to diversify. You can buy partial shares of ETFs that track different market indexes for just a few dollars, or purchase partial shares of various companies and have a wide mix of different assets with well under $100.
The more diversified you are, the less risk you take on, and the better your chances of a well-performing portfolio. Since fractional shares enable that, they significantly reduce the likelihood of suffering big losses when you start out.
3. You can experiment without risking much money
If you're hoping to beat the market by picking individual stocks, there could be a learning curve while you get in your groove and figure out what works for you.
Since fractional shares enable you to invest just a small amount, you can afford to take more risks as you try out different strategies, since you won't have to gamble as much money on each bet you make.
Start investing with fractional shares today
Fractional shares provide a unique opportunity to invest with less risk by widening the pool of available investments, lowering the threshold for diversification, and allowing smaller bets on stocks. With more major brokers offering them, now is the time to seriously consider adding them to your portfolio so you can reap the benefits they provide.