This Brokerage Account Feature Is Crucial to My Investing Strategy

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KEY POINTS

  • It's important to maintain a diverse mix of investments in your portfolio.
  • There's one brokerage account feature that makes it easier to branch out and buy different stocks.


It's something you should go after, too.

These days, I'm in a fortunate position to be able to set aside a decent amount of money each year for investing purposes. But when I was younger and money was tight, I struggled to eke out funds for my brokerage account. Instead, I was busy padding my savings account, and the rest of my money basically went to bills.

But even though I now have more flexibility when it comes to funding my brokerage account, I don't have unlimited money to invest with. That's why I like to make the most of the funds I do have. And one brokerage account feature lets me do just that.

When diversifying is important to you

Maintaining a diverse investment mix is a big part of my strategy. I like to invest in companies across different market sectors. And while some people will tell you that there's no need to own more than 20 or so different stocks, I prefer to own way more than that. And fractional shares make that possible.

Although not every brokerage account offers fractional shares, many accounts today do. Fractional shares, as the name suggests, let you purchase a portion of a share of stock instead of a full share.

Why might you want to do that? Let's imagine you're looking to branch out and buy more tech stocks, only the company you really want to own more than any other is trading at $500 a share. It may be the case you only have $250 to buy stocks with. Without fractional shares, buying that stock wouldn't be an option. But with fractional shares, you can buy half of a share if a full share is out of reach.

I'll often fall back on fractional shares not because I don't have the funds to buy a full share, but because I don't want to buy a full share. Let's say there's a company trading for $1,000 a share that I'm interested in owning, but am not completely sold on. I may be willing to take the risk on a $250 investment. But sinking $1,000 into a company I'm iffy on is a different story. In that case, fractional shares give me the best of both worlds -- the opportunity to stretch outside my comfort zone to a healthy degree without having to overcommit financially.

It pays to branch out

A diverse portfolio could make it easier for you to grow a lot of wealth over time. Plus, having a diverse investment mix could protect you from losses during periods of stock market volatility -- something all investors need to assume they'll encounter at some point or another.

It pays to look at a brokerage account that offers the option to purchase fractional shares. They could be your ticket to branching out without taking on undue risk. And they also make it so that money -- or a lack thereof -- does not need to be a barrier to owning a piece of the companies you want to invest in.

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