Amazon (AMZN -2.59%) is in line for a 20-for-1 stock split. Many investors are waiting for their chance to get their hands on an entire share of the e-commerce giant at a reduced price after the split. But if you've done your research and believe in Amazon's potential, you don't have to delay your plans -- thanks to fractional shares.
Many brokers allow fractional share purchases to help more investors gain access to stocks that might have been out of reach due to the price. Buying fractional shares is like getting a slice of pizza. Instead of doling out cash on an entire pie, you grab a slice of pizza and pay less.
We'll dive into what happens if you load up on fractional shares of Amazon before the stock split.
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Diving into Amazon's makeover
This month, Amazon revealed plans for a 20-for-1 stock split on June 3, and investors jumped on the opportunity to add the company to their portfolio. All shareholders of record by May 27 will get 19 extra shares of Amazon for every one share in their account. If you own fractional shares before the split, you may end up with a whole share of Amazon after the split.
The additional shares will be delivered to your account on the first Friday in June (pending shareholder approval). On June 6, you'll notice a drastic drop in Amazon's four-figure share price. If it costs $3,000 before the split, it will be $150 after being cut into 20 bite-size pieces, making it more affordable for retail investors to claim their slice of Amazon.
The stock split in itself won't impact the value of the shares in your account. It's more of a cosmetic change that can attract more investors. More investors could flock to the e-commerce giant when they realize they can grab an entire share at a reduced price.
Getting a piece of Amazon before the split
A stock split in itself won't make your wallet fatter but it can turn your fractional shares into a whole share.
Fractional shares have made investing in companies with a steep price tag more accessible. If you don't want to drop $3,000 on a stock, you can choose a dollar amount that's comfortable for you and get partial shares of the stock.
Let's say you want to start investing in Amazon with $1,500. That will get you a half share if the price is $3,000. If you're looking to spread your dollars among various stocks, you can specify a lower amount to invest. A $150 investment would lead to 1/20 of a share -- the magic dollar amount that could lead you to a whole share of Amazon if the stock splits at $3,000.
Build up your portfolio over time
Before you invest, it's important to assess your financial situation to determine how much you can reasonably allocate toward your investment portfolio. If you only have $150 a week to put toward investing and you want a premium stock, you can take advantage of fractional shares to increase your exposure. Fractional shares also help you diversify. You don't have to depend on one stock to meet your long-term desires.
Let's say that before the split, you invest $150 a week into Amazon for 10 weeks for a total investment of $1,500. If the price stays at $3,000, your total fractional shares would equal a half share of Amazon. After the stock split, you might feel like you've hit the jackpot. Your half-share would turn into 10 whole shares.
Fractional shares can come in handy
There's no reason to wait until after the split to fill your portfolio with Amazon. You can take advantage of fractional shares and position yourself to earn whole shares once the stock splits. But it's important to diversify your stock selection to reduce your investment risk. Fractional shares let you buy Amazon along with other favorite stocks you might be drooling over right now.
