Do you own Tesla (TSLA) stocks? What about Amazon (AMZN)?
One of the common issues with incredibly popular stocks like these is that their prices reflect that immense popularity. With an individual stock trading in the thousands of dollars, it can be quite challenging to add these to your portfolio, especially if you are trying to keep that portfolio well diversified.
Trading platforms in the United States have figured out a solution to this, through fractional share ownership. And finally, that solution is now available in Canada through WealthSimple Trade.
What is Fractional Share Ownership?
Fractional shares are exactly what they sound like - a piece of the pie, but not the whole pie. For example, if ABC co. is trading at $1,000 right now, and you only have $250 to invest, you can purchase 25% of a share (250/1000 = ¼ = 25%).
What Does Your Fractional Share Buy?
Dividends, and Other Stock Events
In the above example, we bought 25% of a share in ABC co. If ABC co. decides to declare a dividend of $10, your fractional share will mean you are entitled to 25% of that dividend, or $2.50.
Similarly, if there was a 2-to-1 stock split, where the number of stocks are doubled, your 25% of one share will become 50% of a share (25% * 2 = 50%).
As a shareholder, you are an owner of the company. That means you have a vote about how the company operates. Most fractional share ownership programs do not allow voting on any fractional shares. If you have 25.6 shares, you would only qualify for 25 votes from your fully owned shares, and the remaining 0.6 shares wouldn’t count.
Fractional Shares: Other Considerations
One important note about fractional shares is that not every company’s shares are available. To run this kind of purchasing program, there needs to be sufficient trading volume to support these fractional share trades. Ultimately this means that only the most popular shares will be available for trade in this matter.
Are Fractional Shares A Good Thing?
Anything that lowers the barriers to entry is a good thing. It can be far less intimidating to invest $10 than $10,000. Not only does that mean more people can get into investing, it also lowers the psychological walls that investors occasionally build in their minds. Those new investors can still build a well diversified portfolio without having large sums to invest.
And that, opening the doors of investing to anyone, is a good thing.
If you’ve been looking for a way to start investing, fractional shares have made that even easier. Start putting your money to work for you, so that one day you don’t need to work.