What is a Fractional Share?

What is a Fractional Share?

As the name implies, a fractional share is a fraction of a single full stock. This makes investing in higher-priced stocks accessible to everyone by allowing investors to purchase a fraction of a share rather than shelling out for the full price of one share.

Fractional shares are born from splits, dividend reinvestment plans (DRIPs), and other corporate actions. However, in recent years, various online brokerage firms have begun to offer them intentionally, allowing investors to buy a portion of a share for as little as $1.

Benefits of Investing in Fractional Shares

Fractional shares offer an affordable entry point into the stock market, allowing more people to start investing. By purchasing a piece of a share, you can begin investing with far less capital than would be required to buy whole shares.

Investing in fractional shares allows for greater diversification. Instead of being limited to lower-priced stocks, you can spread your investments across a wide array of companies, no matter their individual share price. This is particularly advantageous for those starting with a smaller investment portfolio, as it allows them to spread risk across a larger pool of stocks.

Fractional Shares vs. Whole Shares

If a full share of a particular stock is out of your budget, fractional shares provide an opportunity to own a piece of that company. Whole shares are complete units of a company’s stock, whereas fractional shares are less than one whole share.

New investors can use fractional shares as a stepping stone into the world of investing. They offer an affordable way to establish a diversified portfolio, even with limited investment capital. They can also be beneficial for dollar-cost average investing, mitigating the impact of market fluctuations.

How Do Fractional Shares Work?

The investment process involves buying these fractional stocks through a brokerage that offers this service. Once you decide on the amount you wish to invest, that cash is used to buy a fraction of a share.

A significant advantage of fractional share investing is its acceptance by various online trading platforms, each offering unique features. Some platforms allow you to reinvest dividends automatically, while others provide robo-advisory services.

Do Fractional Shares Pay Dividends?

Fractional shares are eligible for dividends. This means that if a company chooses to pay dividends, you will receive a prorated share of the dividend based on your fractional ownership. The dividend income from fractional shares works just like full shares—they're just smaller. For instance, if you own half a share of a stock that pays a $4 annual dividend, you will receive $2.

How to Sell Fractional Shares

Selling fractional shares works much like selling regular shares. You would list the fraction of the share you want to sell, and once a buyer is found, the transaction is completed.

One thing to keep in mind is that selling fractional shares might not always be as straightforward as selling whole shares. Certain brokerages might only allow fractional shares to be sold as part of a full liquidation of a position.

Start Buying Fractional Shares Today with Monorail

Fractional shares provide a fantastic opportunity to start building a diversified portfolio without needing a significant initial capital outlay. Investing in fractional shares represents a step towards achieving your financial goals, thanks to how easy they are to buy. It's an opportunity not to be missed.

Monorail is a platform that stands out in offering an accessible way to buy fractional shares. With its user-friendly interface and commitment to leveling the financial playing field, you can start investing in your favorite companies with as little as $1.

Get started on your investment journey today by exploring the options that Monorail has to offer.

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