Market Briefs Newsletter

Subscribe to our FREE finance & business newsletter to get financial news you can finally use.

Thanks for signing up to Market Briefs! Please check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder. 

Be sure to read our Privacy Policy & Terms of Use.

  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Minority Mindset

Minority Mindset

Defy all odds.

  • Home
  • About
  • Blog
    • WEALTH
    • REAL ESTATE
    • STOCKS
    • SAVINGS
  • PRODUCTS
  • MONEY 101
  • GUAC TALK
Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

See more from Stock Market Investing

Investing In Fractional Shares – The Pros And Cons

May 30, 2022 by Makenzi Wood

Makenzi Wood May 30, 2022

Pros And Cons Of Fractional Shares

Disclaimer

We only endorse products that we truly believe in. Some of the links below may earn us some extra guac at no additional cost to you. Please pass the chips & thank you for feeding our habit.

More money is always better, right? Well, if you want your money to grow for you, the best thing you can do is invest it. 

If you want to invest in individual stocks, you need to buy shares, or a portion of ownership in a business. To invest, you need to buy a single share in that business, which will then (hopefully) generate interest on your investment. Easy enough, right?  

This isn’t a big deal if you have $500 to buy 50 shares that cost $10. That’s perfect!

But what happens if shares are, say, $1,000? Big-name companies like Amazon, Facebook, Apple, and Google have sky-high stock prices, which makes buying an entire share way too expensive for everyday investors like me. 

The expensive price per share makes a lot of new investors think that these big companies are out of reach for them. Fortunately, that’s not the case at all!

Fractional shares split up a single share into smaller pieces, allowing investors to get a piece of the action for less money (albeit for a smaller stake in the company). 

Before fractional shares, you could only buy a single share in a business—which meant you were either priced out of the market or you had to save a lot of money before investing. While they definitely have a lot of upsides, fractional shares aren’t right for every investor.

PlatformPromotionsLink
Get a cash bonus of $30-$500 Sign Up
Get one free stock priced up to $225 Sign Up
Get up to $1,000 after funding a new accountSign Up
Get a free slice of stock worth up to $300Sign Up

The Pros And Cons Of Fractional Shares

Pros: 

  • Budget-friendly
  • Diversification
  • Save time
  • Democratize the market
  • Simplify investing
  • Voting power

Cons: 

  • Limited availability
  • Fees
  • Sizing concerns

Fractional shares have skyrocketed in popularity since the financial crisis of 2008. And personally, I love the idea that I can buy a sliver of popular stock without breaking my budget. 

However, not all fractional shares are created equal. Let’s dive into how fractional shares work, where they come from, and the pros and cons of fractional shares.

What Is Fractional Share Investing?

Before fractional shares, investors would have to: 

  • Find an individual stock to buy
  • See how much the price was for a single share
  • Buy a set number of shares from their broker

That sounds all well and good, but if shares are trading for more than you can afford, it means you have to invest elsewhere. And where’s the fun in that? 

A fractional share is any share that’s less than a full share in a business—in other words, it’s a “fraction” of a full share. A fractional share happens when brokers split a share into units as small as 1/1000th. 

The big benefit of fractional shares is that it allows you to buy individual stocks without spending thousands of dollars. 

And personally, I enjoy investing in fractional shares! I’ve been a member of Stockpile since 2017, when I received free stock as a promotion. $25 worth of free stock has gained in value to nearly $90, which is pretty cool, considering I own just a tiny fraction of Amazon and Tesla:

pros and cons of fractional shares

Click Here to Invest With M1 Finance

Where Do Fractional Shares Come From?

It’s important to note that fractional shares haven’t always been available. They’re a relatively new phenomenon, gaining popularity over the last 20 years, largely in the United States. 

However, the pandemic definitely accelerated the demand for fractional shares. When the market crashed in 2020, more people wanted to buy stock in big-name companies—so more brokerages started offering fractional shares to keep up with demand. 

Previously, you could only get fractional shares as the result of a few situations, like: 

  • Mergers and acquisitions: When two companies merge, they have to do some funky stuff with their stocks. You have to create a shared, common stock for the company to even things out. In this situation, companies will offer fractional shares to simplify the math.
  • Stock splits: Sometimes a company will decide to split up its shares by choice. This usually happens when the cost of a single share gets so high that it makes the stock unaffordable for most investors. To control the price of its shares, the company will split up its stock, which is how some investors end up with fractional shares.
  • DRIPs: A dividend reinvestment plan, or DRIP, happens when you use the dividends earned from stock to buy more stock. Instead of taking a payout, you reinvest your money in the company. However, unless you’re rolling in cash, these dividends aren’t enough to buy an entire share. So, companies offer fractional shares in return. 

Of course, the best way to get fractional shares today is to just buy them! In the past, you ended up with fractional shares as a result of wonky investing situations, but today, investors seek out fractional shares on purpose. 

To get fractional shares, you can buy them from a broker like: 

  • Robinhood
  • M1 Finance
  • Stockpile
  • Stash
  • Fidelity
  • Betterment

Although not every broker offers fractional shares, they’re much more popular because of investor demand. Technically, the broker will foot the bill for the entire share. From there, the broker will split up the share and sell it to investors who want a sliver of it.

Featured Partners

$0 Fees | $100 Minimum

Invest Here

$0 Fees | $0 Minimum

Invest Here

$0 Fees | $1 Minimum

Invest Here

Pros And Cons Of Fractional Shares

Fractional shares might sound like a new-fangled way to complicate investing, but there are a lot of benefits to investing in fractional shares. With that said, there are a few downsides to fractional shares that every investor should know about, too. 

Let’s dig into the pros and cons of fractional shares so you can make the best decision for your situation. 

Pro 1: Budget-friendly

If you invest in fractional shares on a platform like Robinhood, you can literally pay just $1 to start investing. The best thing about fractional shares is that they make expensive stocks more accessible for investors. It democratizes investing by giving people like me affordable access to stocks like Tesla, Amazon, and Google that I would normally have a hard time affording. 

Plus, since you buy fractional shares based on a set dollar amount, you get to set the price! If I only have $50 to invest, I can buy $50 worth of stock, and that’s it. I don’t have to keep an awkward amount of money hanging around because it isn’t enough to buy an entire share. 

Pro 2: Diversification

Investing in fractional shares is a good way to diversify your portfolio. With a smaller stake in these big companies, you can sleep better at night knowing you didn’t put all of your money into one company. 

You never want a single stock to take up too much of your portfolio. For example, if you have $10,000 to invest and single shares are $2,000, that means you can only buy 5 shares in one company. That isn’t great for risk or diversification—but fractional shares will help you weigh your portfolio more appropriately. 

It’s really expensive to buy an entire share, so don’t spend all of your money on it! With fractional shares, you can enjoy the benefits of big-name stocks without putting all of your money in one place.

Pro 3: Save time

Without fractional shares, small-time investors would have to save up enough money to buy a single share. I don’t know about you, but I don’t want to spend months slaving away to save $1,000, only to be able to buy one share in a company. 

With as little as $1, you can start investing in fractional shares right now. Whether you’re a recent college graduate or you want to retire soon, fractional shares speed up your investing timeline because there’s no need to wait.

Pro 4: Democratize the stock market

Fractional shares make stocks more accessible. This means that people without a ton of money can now invest in expensive stocks that were previously only accessible to the wealthy. 

In this way, fractional shares are democratizing our stock market. More people are watching these companies, which gives the public a direct interest in how these companies are performing. 

Pro 5: Simplify the investing experience

Even if you do have the money to buy single shares, it’s kind of complicated. 

Let’s say you have $2,000 to invest and a single share costs $1,500. You can buy one share, but that’s going to give you $500 left over. That means you either need to let that money sit in your money market account, or you need to invest in a company with shares priced at $500. 

That’s irritating and needlessly complicated. With fractional shares, you just plug in the dollar amount you want to spend and that’s it. 

Pro 6: Decision-making power

My favorite perk of investing in fractional shares is the fact that it gives you decision-making power as an investor. I only own a sliver of Amazon, but I still have the power to vote during their board meetings—which I relish.

If you want Amazon to change its ways, why not become an investor? I’ve been able to vote on the brand’s DEI initiatives, leadership, and other important issues. In this way, fractional shares give small investors the power to change the course of these big companies.

Use M1 Finance To Invest In Fractional Shares

Con 1: Availability

Of course, fractional shares aren’t perfect. The biggest downside is that they aren’t available everywhere. 

Fractional shares simplify things for investors, but they’re a headache for brokers. If you’re interested in fractional shares, make sure you sign up for a platform that offers them. 

Another thing to remember is that fractional shares are popular in the United States, but not in the international market. If you’re investing overseas, you might not have the option to buy fractional shares. 

Con 2: Fees

The second downside to fractional shares is their fees. A 1% fee is pretty standard for fractional investments, but that can add up quickly. 

With fractional investing, you buy a small stake in several big companies. Because you’re making a greater number of individual transactions, your broker could charge you more fees (depending on their fee schedule). 

Con 3: Sizing concerns

With fractional shares, you aren’t getting the full benefits of an investment. In other words, you might not get the same returns with a fractional investment compared to buying a full share. Sure, you could see losses on your investments (that’s investing for you), but the potential gains are limited to the risk you took and the amount of money you put in.

The big question is this: if you own a very small fraction of a business, is it worthwhile? Is it generating a noticeable amount of money for you? 

Sometimes it’s better to put your money in assets like ETFs, where you have exposure to a greater number of companies than you would with pricey individual stock. 

Fractional investing is great if you’re just getting started, but there is such a thing as going too small, especially if you have aggressive investing goals.

Invest Today With M1 Finance

Investing With Fractional Shares

Fractional shares aren’t perfect, but they’re a great way for beginners to start investing in individual stocks. I think they’re the ideal way for beginners to see the stock market in action, but they’re also a great option for diversifying your portfolio and making the most out of a small budget.

To start investing in fractional shares, all you need to do is: 

  • Pick your favorite broker (one that offers fractional shares)
  • Fund your account
  • Pick your stock
  • Put in the dollar amount that you’d like to invest
  • Allow the broker to process the transaction

And that’s it! 

Normally it would take a lot of money to invest in big-name companies. The stock market hasn’t been a fair, accessible place historically, but thanks to fractional shares, people like me can afford to participate in the market. 

Even so, make sure you weigh the pros and cons of fractional shares carefully. They aren’t right for all investors, so do your homework before you start investing.

Stock Promotions

BrokeragePromotionLink
1 Free Stock Valued Up to $225Sign Up
Get $30 When You Deposit $1,000Sign Up
Get a free slice of stock worth up to $300Sign Up

Written by Makenzi Wood.

Kenzi is a writer obsessed with frugal living. She's a reformed shopaholic who's now happily debt-free and working towards FIRE.

Primary Sidebar

Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

More From Stock Market Investing

  • Robinhood Scandal - Should You Still Use Robinhood?
  • Making The Most Of Investing In A Bear Market
  • Best Investment Accounts For Young Investors
  • Dollar Cost Averaging – Everything You Need to Know

Get Your FREE Guide To The Stock Market

& our daily newsletter

Thanks for signing up for our financial education emails! Check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder.

Be sure to read our Privacy Policy & Terms of Use.

Featured Stock Market Investing Posts

Robinhood Scandal

Robinhood Scandal - Should You Still Use Robinhood?

Investing Bear market

Making The Most Of Investing In A Bear Market

best investment accounts for young investors

Best Investment Accounts For Young Investors

Dollar Cost Averaging

Dollar Cost Averaging – Everything You Need to Know

The Latest On Stock Market Investing

Stock Market Investing Accounts

Best Stock Market Investing Accounts For 2022

M1 Finance Review

The Ultimate M1 Finance Review - Great For Experienced Investors

Robinhood Review

Robinhood Review - How To Use Robinhood In 2022

Webull Alternatives

Webull Alternatives To Consider - Top Investing Apps In 2022

Top 5 Investing Apps With Instant Deposit

The Top Investing Apps With Instant Deposit

What Is M1 Finance

What Is M1 Finance? How To Start Investing With M1 Finance

How To Invest in Stocks For Beginners In 2022

How To Invest In Stocks For Beginners - Ultimate Guide

Here's exactly what an IPO is and if you should invest in them

What Are IPOs And Should You Invest In Them?

Using a good investing app can help boost your portfolio

The Top 5 Stock Market Investing Apps

Hands-Off Investing Strategies: ETFs

Hands-Off Investing Strategies: ETFs

Footer

Keep Hustlin’

Company

  • About Us
  • Store

Help

  • Contact Us
  • Advertise
  • YouTube

Legal

  • Privacy Policy
  • GDPR Opt-Out
  • Comment Policy
  • Terms of Use

Follow us on:

Disclaimer: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements, and seek independent professional advice, before making any financial decisions. Our content is provided for informational purposes only, and no content that is provided or included in our products or services is intended for trading or investing purposes. We will not be liable for the accuracy, usefulness, or availability of any information transmitted and/or made available by way of our products or services, and shall not be responsible or liable for any trading and/or investment decisions made by you based on any such information. For a further understanding of this Disclaimer and use of our site, please see the information contained in our Terms of Use and Advertising Disclaimer.

Minority Mindset may earn a portion of sales from products that are purchased or recommended through our site as part of our Affiliate Partnership with retailers and brands.

Minority Mindset has partnered with CardRatings for our coverage of credit card products. Minority Mindset and CardRatings may receive a commission from card issuers.

© 2023 Minority Mindset, LLC. All Rights Reserved.
Website managed by Stallion Cognitive™