How to open a brokerage account for buying fractional shares
Once you've picked a brokerage, return to its website. Look for a button labeled "Open an Account."
Once there, you may be surprised by how much information you're asked to supply. Brokers need this information to comply with federal laws and regulations.
Here's a sample of what you may be asked to provide:
- Your name
- Social Security number (SSN) or taxpayer identification number (TIN)
- Address
- Telephone number
- Email address
- Date of birth
- Driver's license, passport information, or some other form of government-issued ID
- Employment status and occupation
- Insight into your investment objective and risk tolerance
How to buy fractional shares
Once you find a broker that offers fractional shares, and you've checked its fee schedule, it's time to fund your account and start buying. Here's how to buy fractional shares:
- Deposit funds into the account. It may take several days for the funds to settle in the account.
- Select the stock or ETF that you want to purchase. Many brokers do not provide a list of fractional share stocks. If yours does not, make sure it offers fractional shares for the stocks you have chosen.
- Choose the amount you want to invest in each stock or ETF. You may deposit a set dollar amount every month. Or, it may be based on your selected portfolio allocation.
- Follow the prompts to make a purchase. The money to cover your purchase will be deducted from the funds you have deposited into the account.
Can you buy fractional shares of any stock?
You can buy fractions of any stock offered as fractions by your brokerage.
Some companies don't offer fractional shares. Different brokers also tend to offer slightly different stocks. Keep this in mind as you're shopping around for the right brokerage.
Planning ahead is a good way to ensure you sign on with the right broker. Let's say you have your heart set on buying fractional shares of Tesla and CVS stock. Make sure any broker you're considering offers both.
How much do fractional shares cost?
Typically, you can start investing by buying a fractional share for as little as $1 to $5. That's a far cry from having to put together nearly $3,000 for a single share of AutoZone.
Can you make money with fractional shares?
Yes, you can make money with fractional shares -- you can also lose money with fractional shares. Just like with whole shares of stock, whether you make money with fractional shares depends on many factors. These factors include the market and the company itself.
Is buying fractional shares worth it?
Absolutely. There are several reasons why buying fractional shares is worth it.
Fractional shares allow you to begin investing with very little money. They're a great way to get your feet wet without betting the farm. Also, once you open a brokerage account, you may get access to educational resources (depending on your brokerage). These can help you learn to be a better investor in the future even if you're starting small right now.
Pros
- Invest in the stock market with little money.
- Invest in high-priced stocks.
- Build a diversified portfolio of stocks and ETFs with less money.
- Rebalance your portfolios much easier.
- Put your money to work immediately.
Cons
- Complicates recordkeeping and bookkeeping.
- Complicates transferring shares.
- Complicates liquidity.
- Removes shareholder rights (sometimes, depending on broker).
- Eliminates dividend earnings if the fraction is truly tiny.
What are fractional shares?
A fractional share is a position in a stock equal to less than a whole share. The fraction is between 0 and 1.
Fractional shares are important because they make it easier for new or small investors to buy stocks.
You'll often see half-shares after stock splits. Companies sometimes offer 1.5 or 2.5 new shares for every existing share. This results in fractional shares. But fractional shares can be even smaller. Many companies calculate them down to thousandths or ten-thousandths of a share.