In the past few years, investing in the stock market has become easier and cheaper due to the rise of online brokerages like Robinhood Markets and commission-free investing, as many brokerages have eliminated the fees that were charged for making trades.
It's also become more accessible to a broader range of investors through the introduction of fractional shares investing. This concept, which some brokerages call “stock slices” or “stocks by the slice,” allows people to buy fractions of a share as opposed to the whole stock. This enables investors with limited funds to invest in some of the most popular stocks on the market, like Microsoft (NASDAQ: MSFT), even if they are offered at prices that some would normally consider to be out of reach.
NBA 2K22 or Microsoft?
As measured by valuation, Microsoft is the third-largest company in the world with a market cap of over $1.8 trillion. Its stock currently trades at $301 per share, meaning it costs that much to buy just one share of the technology giant. The stock price was up about 35% year-to-date through Sept. 1, and over the last three years it has almost tripled in value. In September 2018, you could have bought shares of Microsoft for about $108 per share.
Microsoft, of course, owns the video gaming brand Xbox. Next week, Xbox comes out with the latest edition of one of its more enduring and popular games, NBA 2K, which simulates the NBA professional basketball league. On Sept. 10, Xbox will release NBA 2K22, an eagerly anticipated simulation of the upcoming NBA season. The game will be sold at GameStop and other retailers for $59.99, with a special 75th anniversary of the NBA edition going for $99.99.
Millions of fans of the NBA 2K series will plunk down either $60 or $100 on Sept. 10 to play the latest edition of this game, which includes updates of all the current players, including rookies, and their teams. Those more interested in the game maker than the game might instead invest that money in Microsoft. Here's how.
A slice of Microsoft, for a fraction of the cost
Fractional shares, or stock slices depending on which brokerage you use, let you invest basically any dollar amount you want, regardless of the share price. So, if Microsoft is trading at $301 per share, that may be too expensive for some investors to buy a few shares, particularly those starting out. Just three shares of Microsoft at that price will cost over $900.
But for the cost of NBA 2K22, or the special edition, you could invest in Microsoft by buying fractional shares. This is also known as dollar-based investing, meaning you invest any dollar amount you want, and it buys whatever fraction of the share that represents. So a $60 investment in Microsoft through this method would buy you roughly 20% of one share of Microsoft. The beauty of it is, your returns match the returns for the entire share — so if Microsoft's stock price goes up 35% this year, your fractional share appreciates at the same rate.
You could use that $60 to buy a few shares of a much lower-priced stock, but you may be taking more of a chance on a stock that's less established and not a market leader and one of the most successful companies in history, like Microsoft. Consider its consistency — over the last 10 years, Microsoft has averaged a nearly 28% increase in annual earnings.
So, before you put down that $60 for the latest edition of NBA 2K, consider putting that money into fractional shares of Microsoft. Plus, if you wait a few months, the price of NBA 2K22 will drop or you can buy it used for less — making this investment alternative a bigger potential win-win.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool has a disclosure policy.