Tesla (TSLA +0.97%) made headlines after its stock price took a tumble Tuesday morning, falling by around 13% and turning Tesla negative for the year.
Despite its volatility, Tesla has experienced an incredible climb over the past year. The stock price soared by more than 700% in 2020 alone. However, that also means it's an expensive stock to own.
As of this writing, Tesla stock is priced at close to $700 per share. If you're on a tight budget, spending hundreds of dollars on a single share of stock may not be feasible. However, there's a way to invest in Tesla for as little as $1 -- and it's easier than you may think.
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An affordable way to invest
One of the most affordable ways to buy individual stocks is to invest in fractional shares. When you invest in fractional shares, you're buying just a small portion of an individual share of stock. Rather than spending $700 for a single share of Tesla stock, you can buy a fractional share for $100, $10, or even $1.
There are a few advantages to investing in fractional shares. For one, you don't need to spend an arm and a leg investing in individual stocks that may or may not perform well. No matter how promising a particular stock may look, there's always potential for volatility. If you invest all your savings in one stock and that company takes a turn for the worse, your investments could plummet.
With fractional shares, you can invest as much or as little as you can afford while still creating a diverse portfolio. Even if you only have, say, $100 to invest, you can easily invest in dozens of different stocks with fractional shares.
A diverse portfolio is crucial to help your investments survive market turbulence. It's best to invest in at least 10 to 15 different stocks across a variety of industries to limit your risk. If you were to invest in full shares of stock, it could easily cost thousands of dollars to create a diverse portfolio. But with fractional shares, you can build a healthy portfolio even on a tight budget.
The key to successful investing
Buying shares of big-name stocks for bargain prices can be a smart investing strategy, but it's important to make sure you're buying the right stocks. Just because you can invest in a particular company for a few dollars doesn't necessarily mean you should. Choosing the wrong stocks could be a costly mistake.
Before you invest in Tesla -- or any other company -- make sure you've done your homework. Look into the company's fundamentals, like its revenue growth, its leadership team, and its competitive advantage in its industry. While there are never any guarantees when it comes to the stock market, the best investments have strong fundamentals and potential for long-term growth.
Doing this much research when you're only spending a few dollars on fractional shares may seem impractical. However, say you invest a few dollars in a particular stock right now, and that stock performs well. Because of that strong performance, you may decide to invest another $100, then $500, then $1,000. Before you know it, you may have thousands of dollars invested in a stock that you haven't done any research on. If that company has weak fundamentals, its stock price could eventually tank -- taking your money with it.
Investing in individual stocks like Tesla may seem out of reach if you're on a tight budget. With fractional shares, however, it's easier than ever to start your investing journey. By doing your homework and choosing your stocks wisely, you can start making money in the stock market without breaking the bank.
