Originally, fractional shares were only available to certain investors due to the uneven distribution of the company following mergers and acquisitions. However, due to the increasing number of brokers offering this type of financial product, investing in the stock market at more affordable prices is now possible.
What Is a Fractional Share?
A fractional share is a small portion of a stock or an exchange-traded fund less than a whole share. According to the experts at SoFi, “Fractional shares make it possible to own part of a stock from your favorite companies without committing to a whole share.”
Before the advent of a fractional share, it was almost impossible to buy stocks and exchange-traded funds with less than a single share. Mutual funds have been supporting this investment for a long time. A stock split or reverse stock split is a type of action that increases the number of shares a company has.
For instance, in a stock split, the company gives its shareholders additional shares. For example, if you owned 15 shares, the company’s stock split would give you three additional shares for every two. In a reverse stock split, the company gives its shareholders two additional shares for every three that they own.
A dividend reinvestment plan (DRIP) is a type of investment that allows investors to receive regular dividends from a company. When this happens, the dividends are used to purchase new shares. For instance, if the stock is trading at $40, the DRIP would buy one and a half shares.
Mergers and acquisitions are also known as reverse stock splits. When a company acquires another company, its stock is exchanged for new shares. This process usually involves using a ratio to combine the various stocks of the new company.
One of the most unique types of investment opportunities that exist in the stock market is fracking. This process allows people who would otherwise not be able to participate in the market to make money.
Invest Any Amount
One of the most significant issues that investors face when investing in the stock market is the high cost of buying a single share. With the advent of a fractional share, it’s now possible to invest as little as $1.
If you’re interested in investing in the stock market, convert the amount that you’re currently holding into the equivalent of one share. No minimums are required and commission fees are not charged.
Build a Balances Portfolio
It’s easy to customize your portfolio and reduce risk with various stocks and exchange-traded funds available on our platform. In fact, according to our research, those who trade fractional shares tend to have more unique stocks in their portfolio.
You can automatically convert cash dividends into a fractional share with a dividend reinvestment plan. You can also use this feature to support dividend-paying stocks and exchange-traded funds.
There are many benefits of buying a fractional share. First, they offer anyone the ability to afford to invest. If you are thinking of investing, you can trust the experts at SoFi to look out for you.