Fractional shares let investors buy a portion of a stock, making it easier to diversify even with small amounts of money. If you've had your eye on a pricey stock but don't want to invest all your savings in a single company, fractional shares available through a few online brokerages could be an affordable way to get started. Fractional shares let investors purchase stock based on a dollar amount they select rather than the price of a whole share. This may be particularly advantageous for investors who are working with limited capital but want to build a highly diversified portfolio.
Why might investors buy fractional shares?
To invest in stocks you couldn't otherwise afford
Fractional shares can help you build the portfolio you want but couldn't previously afford. For example, if a stock trades for $3,000 per share — which isn't unheard of — you'd need at least $3,000 just to add it to your portfolio. Want to buy more than one share? You'll have to purchase in increments of $3,000 ($6,000 for two shares, $9,000 for three shares and so on). If you don't have that much set aside, you'll need to find another investment.
But this isn't the case with fractional shares. Fractional trading lets you buy the amount of stock you can afford, whether that's $5, $50, $500 or $5,000.
To build a diversified portfolio
Some of the most popular stocks today are also some of the most expensive. Building a well-diversified portfolio consisting of just a few shares of each could require tens of thousands of dollars in upfront capital.
Let's say you had $1000 to invest. With fractional shares, you can allocate a certain amount of your money toward each company you want to invest in. If that's 10%, you could invest $100 worth of stock in 10 different companies, no matter their share price. This helps you build a much more diversified portfolio than if you'd invested a lump sum in a single company.
Can I buy dividend stocks as fractional shares?
Yes, you can buy fractional shares of dividend stocks, but the amount you receive in dividends will be proportionate to how much of the share you own. So, if you invest $25 in a $100-per-share stock with a dividend of $1, your dividend will be only 25 cents.
In LAVA you are able to buy any stock for any amount from as little as $1, and build diversified portfolio.