Investing your third coronavirus stimulus check could be a smart financial move if you have all your current bills paid and you have a generous emergency fund to cover unexpected expenses. By investing the money you could end up with a lot more cash later on, thanks to the returns you earn. The money can help you build a more secure future over the long term.
Of course, in order for investing to pay off, you'll need to be smart about where you put your money. And one way to make your $1,400 stimulus check stretch further is to buy fractional shares.
Why investing in fractional shares could be the ideal choice for your stimulus check
Although the $1,400 stimulus check is the most generous one yet, it's still not a ton of cash to invest, relatively speaking. In fact, it wouldn't even buy you a single share of some big-name stocks such as Amazon (AMZN 4.03%), which has a per-share price topping $3,000.
That's why investing your stimulus money in fractional shares could be the ideal choice. Fractional shares allow you to specify how much money you want to invest, rather than the number of shares you want to buy. If your purchasing power doesn't extend far enough to buy a full share, you buy a fraction of one. So, if you wanted to sink your entire stimulus check into Amazon, you could -- and end up with just under half of a share in your portfolio.
Even better, with fractional shares, you can buy really small portions of shares if you want to. In fact, some brokers allow you to buy as little as .001 of a share. Since putting all your stimulus money in Amazon (or any other company) would mean the fate or your investment hinges on the performance of a single business, you may want to spread your stimulus check around to a few different investments.
Fractional shares make that easier. You could put about $466 into three different companies, or invest $100 into 14 different ones. This would provide a lot more diversification and increase the chances at least some of your investments perform well.
If you'd prefer to invest in index funds rather than individual companies, fractional shares also help you do that. You could invest $1,400 across different ETFs that track different sectors of the market, such as a large-cap and small-cap funds.
When you buy fractions of shares of ETFs or individual companies, you'll benefit from rising share prices in exactly the same way as investors with hundreds or thousands of shares do. If you've bought half a share of Amazon and the stock price goes up 5%, you'll make 5% on your $1,400 investment -- just like an investor who'd sunk $1 million into Amazon shares would make 5%. So there's no reason not to try out this approach.
Of course, even if you're just buying fractional shares, you're putting money on the line -- so make sure to research investment options carefully. The great part is, the ability to buy partial shares means you can pick the investments that you most want to put your stimulus money into without being constrained by the fact you have just $1,400 to invest.