I’m a long-term investor, so many of the stocks and exchange-traded funds that I purchase stay in my portfolio for decades. That doesn’t mean I won’t ever sell them, though, and in fact my asset allocation will shift as I get older and my risk tolerance changes.
But, regardless of my investing timeline or my current goals, there’s one type of investment that will always be in my portfolio. Here’s what it is.
I’ll always take advantage of this investing opportunity
See, fractional shares allow me much more flexibility in how I invest — and they open up the door to purchasing shares of expensive stocks that I might not otherwise be able to afford due to their high price per share.
A fractional share is a fraction or a part of a share of stock. A growing number of brokerage firms offer them, and they make it easier for everyday investors to buy stocks they like without being constrained by the cost. While it may have once been difficult or impossible for anyone but the wealthy to buy shares of companies with stock that cost hundreds or even thousands of dollars per share, now anyone can purchase part of a share of these businesses if they want to.
The ability to choose investments based on what I’m interested in, rather than based on which stocks have a share price I can comfortably afford, is just one of many reasons why I’ll always have fractional shares in my portfolio. But there are other reasons as well.
Another big benefit, from my perspective, is that fractional shares make it easier for me to achieve the diversification I’m looking for in my portfolio. I don’t want to be too heavily concentrated in any one company because I prefer to reduce my risk by spreading by cash around a mix of different investments.
In the time before fractional shares, this meant passing up some companies because buying just a few shares would take up too large of a percentage of my available cash. But now, I can simply decide how much I want to invest in those businesses. If I have $5,000 to put into the market and I don’t want to put all my eggs into one basket, I can opt to buy $1,000 worth of stock of four different companies — and pick any companies I want. I’ll simply buy whatever fraction of a share that $1,000 allows.
Finally, I love fractional shares because it makes it easier to add to my portfolio a little bit over time. Rather than having to wait until I have a lot of money to invest, I can choose to buy stocks as soon as I get even a small amount of spare cash. Even if that’s only $10 or $100, I can buy a partial share of stock with that money and simply add to my stake over time.
The good news is, almost anyone can take advantage of these benefits of fractional shares as long as your brokerage firm offers the option to buy them. If yours doesn’t, you may want to consider switching to one that does, as fractional shares have a lot of benefits when building your portfolio.
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