Fractional shares can make investing accessible to everyone, especially people who don’t have the funds to satisfy hefty account minimums.
When you first set out to create your investment portfolio, don’t be surprised if you discover you have to save up some money just to open an account.
Most account minimums are north of $2,000, some as high as $20,000 or even more. With these high account minimums, many people have found other creative ways to invest in companies.
Save and get started quickly, because if you wait too long, you could lose out on the benefits of compounding that can only be fully reaped with time.
Even if there are no account minimums, the share prices can leave you feeling hopeless, as you quickly realize that only one stock share can cost hundreds (or even thousands) of dollars.
Whether you are a college student, a recent college graduate, or an employee who is successfully moving up the corporate ladder, you still need enough money to cover your basic expenses before you start making regular investments.
There are several different ways to get started investing, so be sure to explore all of your options.
If you just want to dive in, our #1 recommendation for buying fractional shares is M1 Finance. It's commission free investing that allows you to buy fractional shares. Check out M1 here.
What Is Fractional Share Investing?
How do you invest regularly when it costs so much to open an account or buy shares?
Fear not, this is where fractional shares come into the picture. Fractional shares allow you to buy fractions of a whole share, just as the name suggests.
With fractional shares, you can invest in multiple funds based on what you can afford.
You can even purchase enough to invest just $30 per week! While some of the platforms still have account minimums, fractional shares can help you reach your goals faster than investing in whole shares.
Let’s take a closer look at how fractional shares work.
How Can You Benefit From Fractional Shares?
Fractional shares allow you to buy fractions of stocks in companies that have a high price per share.
More importantly, you can immediately start using all cash available for investing because you no longer have to wait and save up the minimum funds needed to open an account.
As a result, you get access to shares you may not have otherwise been able to afford.
Most companies issue stock in whole units known as shares, which are then traded on the open market. Because the stocks are issued and traded as whole shares, most brokers restrict investors to buying and selling stock in whole share quantities.
Surprisingly, you could still end up with fractional shares due to stock splits and dividend reinvestment plans, even if you only trade stocks in whole shares.
Getting started is easy.
First, you set the dollar amount or amount of shares you wish to purchase. Next, the platform will calculate the amount of shares or dollar amount needed to meet that number of shares, regardless of whether it is a fraction.
Fractional Shares Add Flexibility
Investors can leverage the benefits of trading fractional shares by getting access to stocks that they normally would not be able to afford if they were forced to purchase whole shares.
If you’re on a budget and want to limit the amount spent on a trade, fractional shares can help you buy high priced stocks such as Priceline (PCLN) with shares traded between $1,148.06 and $1,927.13 per share in the past year.
Fractional shares can be advantageous when you don’t want to spend a lot of money on a trade, but wish to purchase a stock that has a higher price per share.
Put All Of Your Cash To Work
Since you control the amount you spend, fractional shares allow you to put all of your available cash into the market immediately- no need to wait until you raise enough cash to meet the account minimum or enough funds to buy one share.
If you don't invest with fractional shares, you'll end up with random amounts of left over cash just sitting in your account going to "waste".
Calculations Are Done For You Based On Your Budget
This is a huge plus for those of you that don’t like to do math- you don’t have to calculate how many fractional shares of a stock or exchange-traded fund (ETF) you want to buy or sell.
All you have to do is input the dollar amount for each trade or the share amount, and the calculations will be made to meet your goal!
Most fractional shares are eligible for dividends just like full shares.
Since you are able to make regular investments that meet your budget, it will be easier to invest on a regular basis for the amount you choose.
Where Can You Invest Fractional Shares
Now that you know more about fractional shares, take a moment to review some of the companies listed below to get started with investing in fractional shares.
Fractional shares are growing in popularity, and with new apps and companies that provide an investment plan for any budget, you will be confidently investing in your portfolio in no time.
1. M1 Finance
M1 Finance is our favorite place to buy fractional shares to invest because they offer FREE investing! Yes, you read that right - commission-free investing.
M1 Finance allows you to invest in a basket of stocks or ETFs (your portfolio), and when you deposit new money, it will buy fractional shares in all the companies in your portfolio.
Plus, if you have a certain allocation you're going for, it will buy shares to help you maintain the proper allocation.
Check out M1 Finance here, or read our full M1 Finance review here.
2. Fidelity
Fidelity has long been our top pick for a full service brokerage, and earlier this year, they announced fractional share investing. You can buy and sell fractional shares of individual stocks and ETFs on their platform commission-free.
This is a huge win for investors getting started with just a little bit of capital.
Check out Fidelity here, or read our full Fidelity review here.
3. Public
Public is one of the newest commission-free brokers that allows app-based investing. But what sets them apart is that they also allow fractional-share investing.
You can invest in fractional shares on the platform, and still enjoy commission-free trading. They don't allow day-trading, and fractional share investing does take slightly longer to settle.
As a bonus, Public also offers a huge interest rate on cash up to your first $10,000 in the account.
Read our full Public Investing App review here.
4. Robinhood
Robinhood has been the biggest player in commission-free investing for years, revolutionizing the industry with app-based investing several years ago.
However, Robinhood just announced that they will support fractional share investing, and allow Dividend Reinvestment (DRiP). This is huge because Robinhood is already one of the best places to invest for free. Adding in this feature makes them a more robust investing platform.
Read our full Robinhood review here.
5. Betterment
Betterment is a company that offers fractional shares of ETFs invested into a curated portfolio. Betterment allows you to invest in thousands of companies across the world with minimal risk.
Betterment has 3 portfolio strategies:
The SRI (Socially Responsible Investing) portfolio, Goldman Sachs Smart Beta portfolio, and the BlackRock Target Income portfolio. The SRI portfolio allows you to invest based on your values while keeping fees low.
Investors who select Betterment’s Goldman Sachs Smart Beta portfolios can use Goldman’s ActiveBeta™ equity and Access Fixed Income funds.
The BlackRock Target Income portfolios are based on bonds and designed for investors who are looking for a low risk portfolio with steady income.
Betterment also has a Smart Saver account that lets you earn much higher interest than a regular savings account.
Check out Betterment here, or read our full Betterment review here.
6. Stash
Stash is a popular option for investors looking for accounts with low minimums and expert guidance. With Stash, you can invest in a curated selection of exchange-traded funds (ETF's) or purchase fractional shares of stocks through a mobile platform. Stash provides some personalized investment recommendations based on your responses to several questions.
Their fees are reasonable, at $1 per month for accounts under $5,000, and an annual fee of 0.25% for accounts over $5,000. You can choose from a selection of ETFs preselected by their financial experts. Stash also provides educational content tailored to your unique investing profile.
For convenience, you also have the option to set up automatic investments to your portfolio. Companies like Stash can buy one share and split it into fractional shares, and you can get started and own a fraction of a share for just $5.
Read our full Stash Investing review here.
7. Stockpile
Stockpile lets you buy fractional shares and start trading at 99 cents per trade. There are no monthly fees or minimums. You can choose fractional shares of more than 1000 stocks and ETFs.
At Stockpile, you can buy stock using a credit card, debit card, or even PayPal, and dividends are reinvested free of charge. Like Stash, all it takes is $5 to get started.
Stockpile is also a great way to give gifts of stock to children. Read our full Stockpile review here.
Final Thoughts
Before you begin investing with fractional shares, learn the basics and read up on best practices in building your portfolio.
We have put together a list of the best investing blogs and investing podcasts to follow, as well as ways to learn about investing when you are just starting out.
Now that you’ve learned the benefits of fractional shares, how will you put more of your money to work? Have you ever bought or sold fractional shares? If so, we’d love to hear about your experience in the comments section below.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Hello,
I came across your site when I was forced to move an IRA account to another company. The company that moved the IRA no longer offered the ability to buy fractional shares inside your IRA. Do you know of any company’s that allow you to buy fractional shares inside an IRA?
Yes, multiple companies do. Our favorite is M1 Finance. Check it out here: M1 Finance.
I have been using Sharebuilder to buy fractional shares for about 10 years and loved them. But they just got bought out by Etrade so will no longer offer this.
I am thinking about stockpile what do you think is the best one?
thanks
Since writing this, M1 Finance has moved to totally free investing. I’d recommend them and will be updating this article to reflect it. Here’s a link to our review of them: https://www.thecollegeinvestor.com/19062/m1-finance-review-keeping-invested/
Is there any way or any apps like these ones that let you use stop-loss orders? I believe Stash doesn’t do that, but are there any other investing apps or brokerages that allow you to buy fractional shares and use stop-loss orders?
With fractional share investing, you won’t see a stop loss order option. The reason is the brokerage themselves buys a full share, and divides it up amongst their customers. They typically buy that share/shares at a certain time each day. So, there isn’t a true stop loss ability for fractional share investing.
Even at large brokers, if you have fractional shares (say, due to dividend reinvestment), if you have a stop loss, the full shares will be executed at that price, but the fractional shares typically settle up a day or two later.
Robert,
I am brazilian and started investing in USA market buying some shares. I have a quick question about the dividends. If I bought a share and that share pays dividends, do I recieve the proportional dividend? Or not?
And, in your opinion, is a good idea investing in a share fractionally?
Yes, you would get your small fraction of the dividend.
I have just been notified that my account with Motif is gone due to them going out of business. I have both fractional shares to transfer as well as Market Linked CD’s. Do you know any company that can take both of those in a transfer without having to sell and take loses on any of it?
Thanks!
I don’t believe any fractional shares can be transferred. Only whole shares you may have, and the fractional part will be sold off. So, if you have 10.25 shares, 10 shares can transfer, and the 0.25 would be sold and cash would transfer.
I’m sure you’re aware, but Motif made arrangements with Folio.
Motif did not give much notice on closing their doors.
Fidelity no longer allows fractional shares.
Yes they do – it’s a brand new feature as of 2020. They call it “stocks by the slice” and you can see it here: Fidelity Fractional Shares.
You are right…but only in the mobile app (no PC) & only for simple orders. Want stops & trailing stops it has to be whole number shares. I only do trailing stops so that I can ride the price down on buys or ride the price up on sells.
Using Chrome on PC it only allows whole number shares regardless of order type. I am getting tired of insecure mobile devices having greater capabilities than PCs. My hard disk is encrypted on my PC, I know the encryption Chrome uses, and my PC is less likely to be stolen than a phone. Who knows the security of a mobile app?