Online giant Amazon (AMZN -0.27%) has enjoyed massive growth over the past few decades. Not only has it branched out into physical retail, but it's also expanded into new market segments online, like prescriptions.
Amazon's ability to innovate has made it a favorite among investors. But at a share price of close to $3,000 as of this writing, it may be out of reach financially for investors on more of a budget.
The good news, though, is that you can own Amazon even if you have far less money to work with than what Amazon is currently trading at. All you need to do is find a brokerage account that allows you to buy fractional shares, and you can effectively cut the cost of Amazon down to that of a penny stock.
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The upside of fractional investing
You'll often hear that owning a wide range of stocks is a great strategy for building wealth, all the while protecting yourself in the face of stock market downturns. And there are different steps you can take to assemble a nice, diverse portfolio.
One option is to load up on broad market ETFs, or exchange-traded funds. These low-cost funds allow you to own a bucket of stocks with a single investment, and what makes them particularly attractive is that they're totally hands-off. Once you add broad market ETFs to your portfolio, you can generally sit back, do nothing, and let them grow.
But one drawback of investing in ETFs is that they won't let you beat the market. To do that, you'll have to load your portfolio with individual stocks that have higher growth potential. And you may feel that Amazon and other companies with higher share prices fit that bill. With fractional investing, you can own a piece of those companies even if full shares aren't within reach financially.
When you buy fractional shares, you own a portion of a share of stock instead of a full share. If a company trades for $400 a share and you invest $100 in it, you own a quarter of a share. The benefit of fractional investing is that expensive companies no longer have to remain out of reach. And as such, you get more of an opportunity to build a diverse investment mix.
Should you buy fractional shares of Amazon?
If you only have, say, $100 to invest, it won't buy you a very large position in Amazon. But that doesn't mean you shouldn't go for it. If you feel that Amazon is a good company to add to your portfolio, then there's nothing wrong with owning a very tiny piece of it initially and boosting that position over time as money allows for it.
In fact, say you're able to carve out $100 to invest with every month. You can easily spend that $100 on fractional shares of Amazon until you eventually own the equivalent of a full share.
Of course, you may feel that Amazon's stock is overvalued right now, and that's reason enough not to buy it. But if you're eager to own Amazon, you should know that limited funds don't necessarily have to stand in your way.
