What are the benefits of buying fractional?
Here at Rubicoin, we’re constantly trying to make it easier to invest.
That’s why we’re delighted to announce a new update to the Invest app that will make investing more flexible than ever before—Fractional Shares.
What Are Fractional Shares?
A fractional share is defined as a share of equity that is less than one whole share. Though it might sound confusing, it’s really quite easy to understand once you break it down.
We know that companies issue whole units of stock called shares. These shares are traded on the public market for investors to buy. If you buy a share, you buy a stake in a company.
Buying a fractional share is a little different though. Instead of buying an entire unit of stock in a company, you’re buying a partial unit of stock that is less than the value of one full share.
Visualize a full share like a bar of chocolate divided up into 6 equal pieces. If you were to eat the full bar, it’s just like buying a full share. But maybe you’re just not that hungry at the moment.
Instead, you might only eat four of the pieces, leaving two left over. What you’ve essentially done is buy (or eat) a fractional share—a share of the equity that is less than one full unit.
How Do Fractional Shares Work?
So we know that a fractional share is the ownership of equity in a company that is less than one full stock unit. But how do they work in real-life trading exactly?
Traditionally, investors have received fractional shares indirectly from corporate actions within a company they had invested in. For example, if the company had a 3-for-2 stock split, every share you owned would now be worth 1.5 shares. So if you owned 5 shares in a company prior to a stock split, you’d own 7.5 shares after the stock split. And since 0.5 doesn’t equate to a full share, you’re now the proud owner of a fractional share!
Other corporate actions like company mergers or dividend reinvestment plans (DRIPs) can also result in fractional shares being added to your portfolio. Quite often though, investors are offered a cash-out option instead, which is the monetary value of the fractional share instead of the partial share itself.
Why Buy Fractional Shares?
Why would you only want to buy only part of a stock?
One of the great things about fractional shares is that they allow you to get all of your money working for you.
Quite often, you might have small amounts of cash left over in your brokerage account after a purchase that isn’t enough to buy a whole share of any single stock. You could just wait until all the leftover bits of cash accumulate into enough money to buy a full share, or you could use that money to buy fractional shares and get it working for you straight away.
Similarly, a lot of investors tend to think of stock purchases in terms of the money they intend to invest, not the number of shares they want to purchase. If you’ve saved $1000 dollars to invest in Apple, for example, you won’t be able to invest that exact amount in full shares unless the stock price and commission fees have miraculously lined up.
With fractional shares, however, you can invest the full amount of cash you intend to spend without any awkward remainders left over.
Fractional shares also allow investors to buy shares in companies that typically have extremely high stock prices. Shares in Amazon.com, for example, regularly trade above the $1,500 mark. Some investors won’t be able to afford the price of those shares, but might still want exposure to the stock.
With fractional investing, they can buy as little as $10 worth of stock in any company, adding massive bedrock companies to their portfolio.
Fractional Shares With Invest by Rubicoin
Many investors turn away from fractional investing because they assume there is a lot of math involved in figuring out how much stock you’re getting for your cash.
We do the math for you, though.
When viewing a stock in our showroom, you can simply select the cash amount that you wish to spend and the Invest app will automatically calculate the fractional number of shares this will buy you.
Fractional shares are available to all users of the Invest app who have a brokerage account with DriveWealth.
We’re constantly trying to make it simple to start investing, and the introduction of fractional shares is just the latest step we’ve taken to make brilliant investing easy.
Try out fractional investing for yourself. Download our free Invest app now and Invest With Rubicoin.
Rubicoin operates a full disclosure policy. Rubicoin staff currently hold long-term positions in Amazon and The Walt Disney Company.