If you are new to the stock market, it can be tempting to check out the big names you know first. However, many of the big-name stocks are quite expensive. If your investment budget is small, be aware that there are ways to buy portions of high-dollar stocks for little money.
What Is a Fractional Share?
A fractional share is a slice or a portion of a stock instead of a whole share. There are many online brokerage options that can sell you fractional shares. You can also set up your investment accounts to reinvest your dividends back into your current picks.
To start, it is a good idea to look into index funds. An index fund purchase means that you own a slice of a stock index, such as the S&P 500 or the Dow Jones. Thus, as a fractional share investor, you own a slice of the entire market and can expect steady growth over time. If you see your balance drop because of a correction, you now have the chance to buy more slices at a lower rate!
Benefits of Fractional Investing
The biggest benefit of fractional investing is that you reduce your volatility risk. The biggest companies that offer the most stability also have the most expensive stocks. Instead of buying small dollar stocks and hoping for gains that will allow you to buy more expensive stocks, setting up a fractional share investment account means you can own a slice of the biggest, most stable stocks on the market.
Is there a risk? Always. However, if you have just a few dollars to invest, putting your dollars into an account that can buy small slices of big stocks reduces your risk of a hard correction.
How to Buy Fractional Shares
To keep your dividends high and your costs low, you need to set up an account that does not charge you for each transaction. According to the experts at SoFi, “you can do anything with fractional shares you would do with ordinary stocks, including day trading.” To buy fractional shares with SoFi, you will need an account with them and just $5 to start.
The key to building wealth in the stock market is to allow your investments time to grow. It is rare that just one or two transactions can bring in a great deal of money, though those buy and sell stories are certainly possible.
Be ready for contractions or drops as the market adjusts over time. When the market drops, do not run. Instead, treat these corrections as sales, particularly when investing in index funds. Selling after a big drop is the fastest way to lose money. Be sure only to invest dollars that you do not need to live on at the moment.
Starting with just a bit of money in the market can be quite exciting. Understand that the market tends to drop quickly on rumors and rise slowly on facts. Give your investments time to grow and do your best not to blink when values fall.