What Are Fractional Shares and How Do They Work?

Have you ever wondered what fractional shares are and how they work? In this blog post, we will explain everything you need to know about fractional shares. We will cover what they are, how they work, and why they might be a good option for you. By the end of this post, you will have a better understanding of fractional shares and whether or not they are a good fit for your investment portfolio.

What are fractional shares?

A fractional share is a piece of a larger whole. In the world of investing, fractional shares refer to partial ownership of an investment or stock. For example, if you purchase one share of Apple stock at $200 per share, you would own half a whole unit. If that stock increases in value and reaches $300 per share, you would own one-sixth of a whole unit. Fractional shares are also sometimes known as partial shares or partials.

How do fractional shares work?

When you purchase a full share of an investment, the value of your entire unit is represented by a single share. When you purchase fractional shares, only part of your total investment is represented by a single share.

There are several different ways that fractional shares can be purchased. For example, some brokerages will only allow you to purchase full shares and will not offer fractional share investments. However, some brokerages will purchase fractional shares on your behalf when you make an investment in a specific stock or investment product. If you purchase one share of an investment, your broker may purchase another half a share on your behalf to increase the value of your total unit.

Why might fractional shares be a good option for you?

One of the main benefits of fractional shares is that they can increase your total ownership in an investment without significantly impacting your total budget. For example, let's say that you want to invest in Apple stock, but you only have $100 to invest. If you purchase one share at $200, your total ownership in the stock will be 50%. However, if you purchase fractional shares and own one-sixth of a unit, your total ownership will be approximately 16%. This can allow you to increase your investment without completely disrupting your budget.

Another reason why fractional shares might be a good option for you is that they can enable investors to purchase stock in companies or industries that they are interested in, but may not be able to afford. For example, if you have $100 to invest but would like to own stock in Tesla or Amazon, you may not be able to afford a single share. However, if you purchase fractional shares in Tesla or Amazon, you can still own a piece of these companies without significantly impacting your budget.

FAQs

Are fractional shares a good idea?

Fractional shares can be a good option for some investors, but there are also several downsides that should be considered. Ultimately, the best option for you will depend on your specific investment goals and budget.

What are some of the risks associated with fractional shares?

One of the main risks associated with fractional shares is that they can make it difficult to keep track of your total ownership in an investment. For example, if you purchase one full share of a company's stock and then purchase another fractional share at a later date, it can be difficult to keep track of your total ownership of the company. This can make it challenging to accurately assess whether or not you are making the most of your investment.

What are some specific investment products that might be good options for fractional shares?

There are many different investment products that may be good options for fractional shares. Some of the most popular options include mutual funds, bonds, and exchange-traded funds. If you are interested in investing in fractional shares, it is a good idea to do some research and compare the different products to find a product that will suit your investment needs.

Are there any tax implications for fractional shares?

Yes, there may be tax implications associated with fractional shares. For example, if you purchase fractional shares and then sell or redeem them at a later date, you may be required to pay capital gains tax on any income that you earn. It is important to understand the tax implications associated with fractional shares before making any investment decisions.

Do fractional shares still pay dividends?

Yes, most fractional shares pay dividends. Dividends are regular payment that is made to shareholders of a company in proportion to the number of shares that they own. Some companies, such as those in the technology or pharmaceutical industries, may not regularly pay dividends to their shareholders. If you are interested in purchasing fractional shares, it is a good idea to do some research on the company and its dividend policy.

Is it hard to sell fractional shares?

It can be difficult to sell fractional shares if there is not a lot of demand for them. Many online brokerages, such as Fidelity, E*Trade, and TD Ameritrade, allow you to sell fractional shares.

Which is the best online brokerage for selling fractional shares?

There is no single best online brokerage for selling fractional shares. Some of the most popular options include Fidelity, E*Trade, and TD Ameritrade. It is important to do some research and compare the different brokerages before making a decision about which one to use. Ultimately, the best option will depend on your individual needs and preferences.

Is it better to buy whole or fractional shares?

There is no definitive answer to this question, as the best option will depend on your specific investment goals and budget. Some investors may find that the best option is to buy whole shares, while others may find that the best option is to purchase fractional shares. Ultimately, it is important to do your research and carefully assess the pros and cons of each option before making a decision.​

Can you buy fractional shares of the S&P 500?

It is possible to purchase fractional shares of the S&P 500. There are several online brokerages, such as Fidelity and TD Ameritrade, that allow you to purchase fractional shares of many different indexes and ETFs. If you are interested in purchasing fractional shares of the S&P 500, it is important to do some research and compare the different brokerages before making a final decision.​

Does fractional ownership of a company's stock affect your voting rights?

No, having fractional ownership of a company's stock will not affect your voting rights. In most cases, you will have the same voting rights as any other shareholder, regardless of the number of shares that you own. It is important to be aware that there are some exceptions to this general rule, so you should always do your research and check with the company or a legal professional if you have any questions about your voting rights.

The bottom line

In summary, fractional shares are pieces of a larger whole that can increase your total ownership of an investment without significantly impacting your budget. If you are interested in fractional shares, be sure to speak with your financial advisor or stock broker to discuss the best options for your investment portfolio.

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