Sometimes, a single share in a company can set you back thousands of pounds (or dollars). Not ideal if you’re investing on a budget. That’s where fractional shares come to the rescue.
By breaking down stocks into smaller pieces, it gives you the opportunity to invest in portions of whole shares. Find out how this works, why they’re useful, and how to start investing in fractional shares.
When you buy shares in a company, you’re buying a slice of ownership. A fractional share simply divides the ownership further. The original slice was the full “share”, but if you break down that share further, you’ll end up with fractional stock ownership.
Sometimes fractional shares are created accidentally, such as with a dividend reinvestment plan (DRIP), stock splits or mergers. Other times, the splitting is completely intentional, and done by a brokerage. This feature is quite new in the investing world and only on offer with some of the best trading platforms.
A dividend reinvestment plan (DRIP) is when you agree with your broker that they will reinvest the dividends you receive to buy more shares.
The cost of your slice of the company pie depends on the size of the company and the cost per share. For example, if you want to buy a 50% share of a £100 stock, this will cost you £50. But if you wanted to spend £75 on the same stock, you’d have a fractional share worth 75%.
When a company or broker offers fractional shares, it’s allowing you to get access to stocks and shares that you might not usually have access to due to the cost of a single share.
If your broker allows you to purchase fractional shares, it doesn’t really matter how how the price of a single share is. Fun fact – Berkshire Hathaway (BRK.A), Warren Buffett’s investing company, has the most expensive share price in the world. At the time of writing, a single Berkshire Hathaway Class A shares costs over $600,000 (roughly £475,000)!
Fractional shares also allow investors with limited funds to start investing. One of the best ways to manage risk in a portfolio is to diversify. A difficult task if you can only afford one share. Buying fractional shares allows you to split your funds across a portfolio of companies on a smaller scale.
You can buy fractional shares on certain investing platforms – we’ve listed some major ones below. Some platforms also allow you to invest in fractional shares through exchange traded funds (ETFs).
Platforms that offer fractional shares include:
Platforms that offer fractional shares through ETFs:
Despite the lower purchase price, it’s essential to approach fractional investing with the same diligence as any other asset class. Don’t just presume that because you can buy a smaller part of a share you’re getting a bargain or investing cheaply, you still need to look at the overall value of a company and its stock.”
Yes, you can. However, UK fractional shares aren’t very common. The only 3 platforms offering the option to invest in UK fractional shares from companies listed on the London Stock Exchange are Wombat and Trading 212 and XTB.
The upside is that this allows you to invest in companies like Greggs with the same amount you’d spend on a sausage roll.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Dividend reinvestment plans (DRIPs) allow you to reinvest your dividend payments into more shares, which slowly increases your equity. If you don’t receive enough in dividends to purchase a full share, then you’ll get a fractional share. If you hold the shares over a long period and receive several fractional shares in this way, then they’ll be added up to make full shares, like loose change.
Yes, you can. Although, it’s worth noting that if rounding means that you’re due less than a penny in dividends, you’re unlikely to see it hit your account. Fractional share dividends will be split based on the portion of a share that you own. So if shareholders will receive £1 per share in dividends, then 50% of a share will get you 50p.
Although there are some excellent benefits of using fractional shares to invest, you still need to keep a couple of things in mind.
Firstly, cheaper investing with lower costs can sometimes fuel speculation – underplaying the importance of thorough research before making an investment. It can build bad habits that you carry over as your portfolio grows.
Secondly, you can face limitations around what type of accounts will let you invest in and hold fractional shares. For example, not all stocks and shares ISAs or self-invested personal pensions (SIPPs) allow fractional shares.
Ideally, if you want to invest in fractional shares, the best way to do this would be with a cheap investing platform. If you're investing on a budget and only buying a fraction of a share, it's important to keep your costs as low as possible.
Luckily there are now loads of options to invest in fractional shares and pay low (or no) commissions. If you opt for a 0% commission platform, this means you can often invest in fractional shares with just a few quid, and you don't have to worry about trading charges eating into your smaller investment.
Fractional shares can get you access to expensive stocks that you might not have been able to afford otherwise. You can choose to invest in other companies with lower price tags if you don’t think it’s worth buying a fraction of a share.
Now that you know how to buy fractional shares, make sure you’ve worked out the fees – buying half a share doesn’t halve your costs!
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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