After Apple and Tesla announced stock splits, many people have been speculating about which large company will be next. Amazon (AMZN 3.04%) has been at the top of the list of possible options, and for many would-be investors who feel priced out by the stock's approximately $3,100 per-share cost, a split would be very welcome.
But if you want to buy shares of the online behemoth but don't have the cash to cover its high price of entry, fractional shares mean you can own a little piece of Amazon even if a split never happens.
You never need to wait for a stock split again
Traditionally, brokers required those who wanted to invest in Amazon or any other company to buy at least one full share. That's why splits have historically been exciting to investors: They opened the door to ownership of companies that previously had high share prices that put them out of reach.
With Amazon trading at around $3,106 per share, many would-be investors would have a hard time coming up with the money to buy in. But if the company did, say, a 5-for-1 split, as Tesla did, its share price would fall to around $621. This suddenly makes it much more affordable...or at least it would in the past, when purchasing full shares was your only option.
Now, thanks to a growing number of discount online brokers enabling fractional share trading, the days of hoping for a split are gone. Fractional share trading, or dollar-based investing, allows anyone to buy Amazon because you can simply specify how much money you want to invest in the stock rather than the amount of shares you want to buy. If your buying power doesn't afford you a full share, you can buy a partial one.
While brokers have different rules regarding the minimum investment you need to make, those that offer fractional shares typically allow you to trade with very little cash. In fact, some brokers let you buy as little as 0.001 of a share. With Amazon trading at around $3,106, you could own a piece of Jeff Bezos' empire if you had just $3.11 to invest.
Fractional shares thus make the stock accessible to many more investors than even a split would, as it's extremely unlikely Amazon would split its shares enough to bring them anywhere close to that price.
And since most brokers have also eliminated the commission on trades, investing so little in stock actually makes financial sense now if you believe you can profit on your Amazon investment. You'd earn the same percentage return as any other investor, even though your gains would be smaller in terms of the dollar amount. And you could grow your stake over time as you amass more money to buy shares.
Of course, you'll want to do the research to make sure your investment is a sound one, even if it's so small. But if you're confident Amazon is a good buy, don't sit around waiting for a split -- find a broker offering fractional shares.