What Are Fractional Shares?
A fractional share is exactly what it sounds like - a fraction of a single share of stock. Instead of needing hundreds or thousands of dollars to buy one share of an expensive stock, you can invest any dollar amount and own a portion of that share.
Example
If Amazon stock costs $180 per share and you have $50 to invest:
- Without fractional shares: You can't buy Amazon (need $180)
- With fractional shares: You buy 0.278 shares ($50 / $180)
If Amazon goes up 10%, your $50 investment becomes $55 - the same percentage return as buying a whole share.
Benefits of Fractional Investing
Start With Any Amount
Invest with as little as $1 at many brokers. No more waiting to save up for expensive stocks.
Better Diversification
Spread small amounts across many stocks instead of putting all your money in one affordable stock.
Perfect for DCA
Dollar-cost average with fixed amounts ($100/month) without worrying about share prices.
Access Expensive Stocks
Own pieces of high-priced stocks like Berkshire Hathaway, Amazon, or Google.
Where to Buy Fractional Shares
| Broker | Minimum | Stocks | ETFs | Commission |
|---|---|---|---|---|
| Fidelity | $1 | Yes (7,000+) | Yes | $0 |
| Charles Schwab | $5 | Yes (S&P 500) | Limited | $0 |
| Robinhood | $1 | Yes | Yes | $0 |
| M1 Finance | $100 (account) | Yes | Yes | $0 |
| Interactive Brokers | $1 | Yes | Yes | $0 |
| Public | $1 | Yes | Yes | $0 |
How Fractional Shares Work
Buying Process
- Choose a broker that offers fractional shares
- Search for the stock or ETF you want
- Select "buy in dollars" instead of "buy shares"
- Enter the dollar amount you want to invest
- Confirm the order - you now own a fraction of the stock
What You Own
Fractional shareholders have the same rights as full shareholders, proportionally:
- Dividends: You receive proportional dividend payments
- Price appreciation: Same percentage gains (or losses) as whole share owners
- Ownership: You legally own a portion of the company
What's Different
- Voting rights: May vary by broker - some aggregate votes, others don't allow fractional voting
- Transfer: Fractional shares typically can't be transferred to another broker - they must be sold first
- Liquidity: Fractional orders may take slightly longer to fill
Building a Portfolio with Fractional Shares
Example: $100/Month Diversified Portfolio
With fractional shares, you can build a diversified portfolio even with small monthly investments:
- $40 - Total Stock Market ETF (VTI)
- $20 - International Stock ETF (VXUS)
- $15 - Bond ETF (BND)
- $25 - Individual stocks you believe in (5 stocks x $5 each)
Result: Diversified across thousands of companies worldwide, rebalanced automatically each month.
Fractional Investing Strategies
1. Dollar-Cost Averaging
Invest a fixed amount regularly regardless of share prices. Fractional shares make this seamless - $200/month always buys $200 worth of investments.
2. Round-Up Investing
Apps like Acorns round up purchases and invest the spare change. A $3.75 coffee becomes $4.00, with $0.25 invested automatically.
3. "Pie" Investing
Platforms like M1 Finance let you create "pies" - custom allocations that automatically rebalance. Set your allocation once, and every deposit is invested according to your plan.
4. Dividend Reinvestment
Even small dividend payments can be automatically reinvested into fractional shares, maximizing compounding.
Things to Consider
Important Considerations
- Not all stocks available: Some brokers only offer fractional shares for certain stocks (often just S&P 500 companies)
- Can't transfer: If you switch brokers, fractional shares must be sold (triggering potential taxes)
- Execution: Some brokers batch fractional orders, which may affect fill price
- Corporate actions: Stock splits, mergers, and spin-offs can be complex with fractional shares
Fractional Shares vs. ETFs
For diversification on a budget, you have two main options:
| Aspect | Fractional Shares | ETFs |
|---|---|---|
| Control | Choose exact stocks | Pre-packaged basket |
| Diversification | You must build it | Built-in (hundreds of stocks) |
| Fees | No ongoing fees | Small expense ratio (0.03-0.20%) |
| Effort | More work to manage | Set and forget |
Recommendation: For most beginners, ETFs are simpler. Use fractional shares to supplement with individual stocks you want to own.
Frequently Asked Questions
Do fractional shares pay dividends?
Yes! You receive dividends proportional to your ownership. If a stock pays $1 per share and you own 0.5 shares, you receive $0.50.
Are fractional shares safe?
Yes, fractional shares at major brokers are protected by SIPC insurance just like whole shares. They represent real ownership in the company.
Can I sell fractional shares anytime?
Yes, you can sell fractional shares just like whole shares during market hours. Some brokers may have slight differences in execution.
What happens to fractional shares if I close my account?
Fractional shares typically must be sold before closing an account or transferring to another broker, as they usually can't be transferred.
