In today’s fast-paced world of stock trading, competition among brokers is fiercer than ever. As we delve into the heart of October 2023, a notable trend has taken center stage. Online brokerage firms are racing to provide their clients with the ability to invest in fractional shares. This groundbreaking feature has transformed the way investors navigate the stock market, offering them the opportunity to buy portions of a stock or ETF with an amount as modest as they desire, without the need for a lump sum to purchase an entire share. This development is particularly appealing for high-value stocks like Alphabet and Amazon.
For novice investors, the allure of buying fractional shares is especially potent. It empowers them to step into the market with minimal capital, simplifying the concept of dollar-cost averaging. What’s more, the majority of major online brokers have abolished transaction fees, making it an even more attractive proposition.
While some brokers have only recently introduced the option to buy fractional shares, others have indirectly allowed this through dividend reinvestment plans for quite some time. This divide remains, with certain brokers exclusively offering fractional shares through dividend reinvestment.
The Benefits of Fractional Shares
Dividend reinvestment plans offer investors the opportunity to purchase only the stocks that pay out dividends, saving them from having to invest in anything else. With the removal of trading commissions at major online brokerages, reinvesting cash becomes even more cost-effective, requiring only a small portion of your time.
Here are the Best Brokers for Fractional Share Investing:
Charles Schwab
Charles Schwab, known for its investor-centric approach, introduced “Stock Slices” in 2020. This program enables investors to purchase fractional shares of any stock in the S&P 500, with as little as $5 per slice. Trading comes commission-free, and you can reinvest dividends into fractional shares of the same stock.
Fractional Purchases: Yes
Fractional Dividend Reinvestment: Yes
Securities in the Program: Approximately 500, including all S&P 500 stocks
Fidelity Investments
Fidelity, a consistent top contender among brokerages, offers “Stocks by the Slice.” Investors can start with just $1 and buy fractional shares of over 7,000 stocks and ETFs listed on U.S. exchanges. Trading remains commission-free, and dividend reinvestment is available for both stocks and ETFs.
Fractional Purchases: Yes
Fractional Dividend Reinvestment: Yes
Securities in the Program: Over 7,000 stocks and ETFs
Interactive Brokers
Known for serving professional and active traders, Interactive Brokers offers fractional shares for investors with varying budgets. Stocks with a daily volume of $10 million or a market cap over $400 million are eligible for the program, as are ETFs and foreign stocks trading as ADRs, Canadian stocks, and European stocks.
Fractional Purchases: Yes
Fractional Dividend Reinvestment: No
Securities in the Program: Over 11,000 stocks, ETFs, and ADRs
READ ALSO: ETF vs. Mutual Fund: A Comprehensive Investment Comparison
Robinhood
Robinhood is renowned for its commission-free trading and extends this benefit to fractional share investors. You can purchase tiny fractions of shares, down to one-millionth of a share, with a variety of eligible stocks and ETFs. Reinvesting dividends into fractional shares is possible, provided you enable the feature.
Fractional Purchases: Yes
Fractional Dividend Reinvestment: Yes
Securities in the Program: ETFs and stocks above volume and size thresholds
TD Ameritrade
TD Ameritrade, soon to be merged with Charles Schwab, doesn’t offer fractional share purchases. However, it allows investors to reinvest dividends into new shares of the company’s stock.
Fractional Purchases: No
Fractional Dividend Reinvestment: Yes
Securities in the Program: Over 5,000 stocks, ETFs, and mutual funds
E-Trade
E-Trade, now under Morgan Stanley, doesn’t support fractional share purchases but permits investors to reinvest dividends into fractional shares. This option is available for stocks or ETFs trading above $5 per share.
Fractional Purchases: No
Fractional Dividend Reinvestment: Yes
Securities in the Program: Thousands of stocks and ETFs
Merrill Edge
Merrill Edge facilitates dividend reinvestment in fractional shares but doesn’t allow direct fractional share purchases. Investors can quickly set up dividend reinvestment for stocks, ETFs, and mutual funds.
Fractional Purchases: No
Fractional Dividend Reinvestment: Yes
Securities in the Program: Thousands of stocks, ETFs, and mutual funds
Vanguard
Vanguard, known for its mutual funds and ETFs, supports fractional share purchases only for these types of securities. The broker doesn’t offer fractional-share investing for stocks or non-Vanguard ETFs but allows reinvesting dividends in stocks, ETFs, and mutual funds, with some exceptions.
Fractional Purchases: Only Vanguard in mutual funds and ETFs
Fractional Dividend Reinvestment: Yes
Securities in the Program: Stocks, ETFs, and mutual funds
Tastytrade
Tastytrade, a preferred choice for short-term traders, now offers fractional shares for both purchases and dividend reinvestment. However, a minimum order of $5 is required, and market orders are the sole trading option.
Fractional Purchases: Yes
Fractional Dividend Reinvestment: Yes
Securities in the Program: Thousands of stocks and ETFs
To Recap
In conclusion, fractional share investing has become a game-changer for investors, offering flexibility and accessibility. The best broker for you depends on your specific needs and preferences, so be sure to evaluate each one thoroughly before making your choice.
FAQs on Fractional shares brokerage
What are fractional shares, and how do they benefit investors?
Fractional shares allow investors to purchase a portion of a stock or ETF rather than a whole share, making it more accessible for those with limited capital. This benefits investors by enabling them to diversify their portfolios with smaller investments.
Are there any fees associated with purchasing fractional shares?
The good news is that most major online brokers now offer fractional share trading without additional fees. However, it’s always a good idea to check with your chosen broker for their specific fee structure.
Which broker is best for beginners looking to invest in fractional shares?
For beginners, brokers like Charles Schwab, Fidelity Investments, and Robinhood are excellent choices. They offer user-friendly platforms and the ability to start with a small investment.
Can I reinvest dividends with fractional shares?
Yes, many brokers offer the option to reinvest dividends into fractional shares, allowing your investments to grow over time.
How do I choose the right broker for my fractional share investments?
The best broker for you depends on your specific needs, budget, and the stocks or ETFs you’re interested in. Consider factors like fees, available securities, and the user-friendliness of the platform when making your decision.
In other related article, Unlocking the Power of Exchange-Traded Funds (ETFs): A Comprehensive Guide
