How to Buy Fractional Shares on Charles Schwab

Some of the most popular stocks cost hundreds of dollars per share. Charles Schwab and a few other brokerages let you buy "fractional shares" of stock, where you can buy a percentage of a share with a small amount of cash.

For example, if you want to buy a stock with a share price of $200 per share, but you only want to invest $100. Buying fractional shares on Charles Schwab lets you own 0.5 shares of that stock. You don't have to commit the full $200.

Why Charles Schwab is one of the best online brokers for buying fractional shares

Charles Schwab fractional shares are called Schwab Stock Slices™. Schwab's fractional shares let you buy a "slice" of a stock for as little as $5. With Schwab Stock Slices, you can choose from any of the S&P 500 stocks. Buy one slice for as little as $5, or buy up to 30 slices of different companies' stocks all at once (for as little as $5 each, or $150 total). You can also choose to put more than $5 of cash into each individual Schwab Stock Slice with a maximum of $50,000 per transaction.

You don't have to pay any extra fees for buying fractional shares on Charles Schwab. Schwab Stock Slices are commission free, just like "regular" full share trades with a Schwab brokerage account.

Buying fractional shares on Charles Schwab: How it works

To buy fractional shares on Charles Schwab, use this simple three-step process.

1. Open a Charles Schwab brokerage account

You don't need a separate account for Schwab Stock Slices; buying fractional shares with Schwab works the same as other transactions. You'll get your Stock Slices within your brokerage account, just like other investments.

Opening a Charles Schwab brokerage account takes about 10 minutes. Here's how to start:

1. Go to Schwab.com
2. Choose the "Open Account" button
3. Select "Individual Brokerage Account" (this account is not tax-advantaged like a Roth IRA or traditional IRA; you will potentially owe capital gains taxes on the future growth of your investments)
4. Schwab will ask you for:
   • Your Social Security number or Tax ID
   • Your employer's name and address
   • Your mobile phone number and email address

2. Fund the account with cash that you want to use to buy stocks

It could take a few days for the funds to be ready to use in your Schwab brokerage account. Schwab will notify you once your funds are available and ready to invest.

3. Choose your Schwab Stock Slices

You can choose to buy "slices" of stocks from the entire S&P 500, which includes 500 of the biggest publicly-traded U.S. companies. A single share of some of these companies might cost hundreds of dollars. Buying fractional shares with Schwab Stock Slices lets you invest in these popular stocks with just $5 at a time.

If the stocks you buy pay dividends, your fractional shares will also earn dividends -- but at a fractional rate. For example, if you own 0.5 shares of a company that pays a dividend of $1 per share, you'll receive a dividend of $0.50.

What kinds of investors should buy fractional shares on Charles Schwab?

Buying fractional shares on Charles Schwab isn't the right choice for everyone, but it could be a good investment strategy for a few types of people and situations.

Beginning investors

If you are just getting started with learning about the stock market, buying fractional shares can be an easy way to invest without committing too much money.

Investors who want a diversified portfolio of individual stocks

Buying fractional shares on Charles Schwab can give you the power of diversification, by buying up to 30 different companies at once with a minimum cash investment of just $150 ($5 per company's Schwab Stock Slice).

Investors who want to create customized portfolios within the S&P 500

Buying fractional shares can let you build a special "basket" or mini-portfolio of stocks based around a specific industry like airlines, banks, travel and tourism, or your favorite restaurants like Chipotle, McDonald's and Starbucks.

Investors who want to use dollar-cost averaging to buy stocks

Buying fractional shares on Charles Schwab is a good way to use the smart investment strategy of dollar-cost averaging to buy individual stocks -- because you can just keep buying fractions of shares with the same amount of cash each month, no matter if the stocks' prices go up or down.

Bottom line

Before you start buying fractional shares on Charles Schwab or any other brokerage, be aware of the possible risks and downsides of buying individual stocks. Many investors might be better off buying low-cost ETFs for wider diversification.

But if you want to choose your own portfolio of individual stocks, without paying "full share" price, Schwab Stock Slices fractional shares let you buy shares of your favorite S&P 500 companies with just $5 per trade.