Strategies for Investing in Fractional Shares

Disclaimer: The content below is for educational and informational purposes only and does not constitute investment advice, personal recommendations, or a solicitation to buy or sell financial instruments. Investing involves risks, including potential loss of capital. Past performance is not indicative of future results. Investors should consult a qualified financial advisor or conduct their own research before making investment decisions.

While investing in the stock market, you will realise that there are many stocks that are costly, but you still want to invest in them. On a global scale, for example, Berkshire Hathaway has the highest stock price, which stands at $744,120 on the 1st of January 2025. The price makes it challenging for any retail investor to buy a whole stock, but they can still buy fractional shares of it.

The reference to specific companies and prices is for illustrative purposes only and does not constitute a recommendation.

As an investor and trader, buying fractional shares allows you to own big stocks without the big price tag. In this blog, we will explore the top fractional share strategies to purchase only a fraction of a stock to create a strong portfolio with a low budget.

This content is intended for general educational purposes only.

Can You Buy a Fraction of a Share?

A fractional share or partial stock is a part of a whole share of a company. As an investor, you can, indeed, invest in everything you want and buy only a fraction of a stock instead of purchasing a single whole stock. This simplifies the process of beginning to invest even in expensive companies. However, investors should be aware that fractional share availability, rights, and liquidity may vary depending on the broker and market structure. Here are the benefits of buying fractional shares:

Access to Expensive Stocks: Fractional shares allow you to buy expensive stocks at a minimal amount.
Diversification without Big Money: You can diversify your investment in more than one company and industry, even when you are investing a small amount.
Regular, Small Investments: Fractional shares allow you to accumulate wealth as time goes by without having to save up to acquire full shares.

Suppose there is a company listed on the stock exchange whose share price is $1,000. You want to invest in the company, but you can only buy shares of $100. You can buy a fraction of the share and be the owner of the 0.1 share. This way, you will be able to own a share in a popular company without having to pay a huge amount of money in advance.

The value of fractional shares may rise or fall, and investors may incur losses.

How to Invest in Fractional Shares

Here is how to invest in partial stocks of companies:

Select a Broker: Select stockbrokers that will allow you to purchase fractional stocks and open a trading account with them.
Decide the Investing Amount: Select the sum of money you wish to invest in the shares of a company.
Select Shares or ETFs: Create a combination of shares or funds that fits your objectives, even when you can only afford fractions.
Place Your Order: The broker will invest your money and purchase the exact proportion of each stock.

Execution, pricing, and settlement of fractional shares depend on broker arrangements and may differ from full-share trading.

Top Fractional Share Strategies to Grow Your Portfolio

Here are the best fractional share strategies you can use to grow and diversify your portfolio:

1. Dollar-Cost Averaging (DCA)

Dollar-Cost Averaging (DCA) is an investing strategy wherein you invest a fixed amount at regular intervals into a share or asset, regardless of its price. You invest regularly, rather than attempting to time the market. This eliminates the risk of purchasing all your shares at a high price.

While DCA may help reduce timing risk, it does not eliminate market risk or guarantee positive returns.

Suppose you put $50 per month in a $1,000 stock. You purchase 0.05 shares in one month at a high price and purchase 0.07 shares in another month at a low price. In the long run, this equalises your average purchase price.

2. Diversify Across Sectors

Diversifying in the stock market refers to spreading your investment across sectors and industries to reduce risk. When buying fraction shares, invest in different sectors, such as tech, healthcare, finance, and energy.

Diversification does not guarantee profits or protect against losses.

For example, you buy 0.1 shares of a technology company, 0.2 shares of healthcare, and 0.15 shares of an energy company. If one sector performs poorly, it will not pull down your entire portfolio, reducing the risk of a single company.

3. Focus on Long-Term Growth

Invest in companies or Exchange-Traded Fund (ETFs) that have high potential in the long run. Compounding is effective even at fractional ownership. Fractional shares allow you to enjoy long-term growth without necessarily having to purchase full shares initially.

For example, 0.2 shares of a high-growth tech company today would have a significant increase in 10 years. Buying fractional shares allows investors to gain exposure with lower initial capital; however, future returns are uncertain and depend on market performance.

4. Reinvest Dividends

Use dividends to purchase additional fractional shares rather than cash automatically. Reinvesting dividends increases portfolio growth by compounding. The key benefit is that small portions accumulate with time.

Dividends are not guaranteed and may be reduced or cancelled.

A dividend of 5 will purchase 0.005 shares of a $1,000 company that will compound as it continues to pay dividends.

5. Choose Thematic or Values-Based Investing

Thematic or values-based investing refers to a strategy where you invest in businesses or industries that share your interests or values, such as renewable energy, technological innovation, or socially responsible companies. Fractional shares allow you to be part of themes that you are interested in without having to raise large sums of capital. Such strategies may involve higher volatility or sector-specific risks.

6. Invest in Fractional Share ETFs

Buy ETFs through fractional shares to obtain exposure to a portfolio of assets or stocks simultaneously. You can diversify and have exposure to a variety of companies at a small investment. Suppose you invest in an S&P 500 ETF with an investment of 50, they purchase fractional shares of 500 companies in proportion. ETF values fluctuate based on market conditions and underlying assets.

7. Strategic Partial Selling

Strategic partial selling refers to selling part of your holdings instead of selling all of them to control gains or rebalance your portfolio. It gives flexibility in the actualisation of profits or risk adjustment without selling all positions.

Transaction costs, taxes, and market conditions may affect outcomes.

For example, you sell 0.2 shares of a 0.5 share holding to rebalance or invest in another investment. Partial selling helps to keep target allocations and still be invested.

Conclusion

Most investors and traders think of investing in whole shares when investing in the stock market. There are, however, very few investors, especially beginners, who know they can buy a fraction of shares. These shares not only make expensive stocks accessible but also help create a diversified portfolio that fits your objectives.

The best thing about fractional shares is that they are flexible; you can test, change your plan, and invest when you want. Even small investments may grow over time, but they may also decline in value depending on market conditions.

Disclaimer: This content is for educational purposes only and does not constitute investment advice, personal recommendations, or a solicitation to buy or sell financial instruments. All investments involve risk, including potential loss of capital. Investors should consult professional financial advisors and consider their personal circumstances before making any investment decision.