If you’ve paid any attention to the financial world at all, you’ve heard of meme stocks by now. These are stocks, like AMC Entertainment Holdings (NYSE: AMC) and GameStop (NYSE: GME), that get hyped on social media and see their share prices rise — sometimes dramatically and usually very temporarily.
It might seem like a good idea to jump into these meme stocks as they start trending, but it’s actually incredibly risky. The share cost of these meme stocks becomes quickly divorced from the company’s underlying value.
Instead, look to another recent trend that’s much more likely to make investors rich.
Fractional shares can really help you build wealth
The rising popularity of fractional shares has made the news right along meme stocks.
Fractional shares are partial shares in a company. Until recently, brokers did not allow investors to buy fractions of a share (though, indirectly, you could end up with fractional shares as the result of a stock split). Instead, investors were required to buy, at minimum, one full share — which can range in price drastically. But then a small number of niche brokerage firms — mostly catering to young investors — began to offer everyone the opportunity to buy fractional shares of stock if they couldn’t afford to buy full ones.
Once investment apps such as Betterment and Stash began offering the option to buy fractions of shares, big-name brokers also jumped onto the bandwagon. Interactive Brokers and Schwab were among the first household names to offer this option, and a number of others quickly followed suit.
But unlike meme stocks, fractional share trading is an undeniably positive trend in the investing world. It democratizes investing and even makes it possible for beginning investors with very little money to buy shares of companies they believe in, regardless of the price.
Why you should embrace fractional shares
Before fractional shares, people without a big nest egg were closed out of being able to buy shares in many companies. The requirement to purchase at least one full share left many investors between a rock and a hard place: Either purchase investments with lower per-share prices (even if the companies weren’t as solid) or wait, perhaps for years, to collect enough money to purchase preferred investments.
Those days are gone. Now, with just a few dollars, you can still buy shares of any stock you want. Interested in Amazon (NASDAQ: AMZN) but don’t have upwards of $3,350 to buy a single share? If you have just $5, you could still buy around 0.001 of a share and get the stock into your portfolio.
Since fractional shares allow you to specify the dollars to invest, you can also diversify your portfolio more easily — especially if you don’t have a fortune. With only $100, for example, you could split that money among five different companies and purchase $20 worth of each one rather than having to devote that entire amount to buying a single share or two.
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