If you’ve been eager to invest in major companies like Tesla, Nvidia, Apple but found their stock prices beyond your reach, AIMS fractional shares might be the solution for you. Instead of purchasing an entire share, fractional shares allow you to buy smaller portions, making it more feasible to start investing with limited funds.
This method makes investing more approachable, particularly for young adults and beginners. Fractional shares can provide an entry point into long-term investing.
What Are Fractional Shares?
A fractional share represents a portion of a full stock. Instead of needing significant capital to acquire a whole share, you can invest in just a fraction. For instance, if XYZ stock is priced at $1,000 and you have $100 to invest, you could buy 0.1 or 10% of a share.
At AIMS, we offer more than 1,000 stocks from the US market, HK market and UK market to choose from. This allows even advanced investors to diversify their portfolios across different asset classes such as global indices, currencies, metals, and more.
How Do Fractional Shares Work?
With fractional shares, you decide how much money to invest rather than buying a set number of shares. For instance, if you have $500 and want exposure to high-priced stocks, you can purchase fractions of each stock to fit your budget and start building or diversifying your portfolio.
How Are Fractional Shares Created?
Fractional shares can be created in several ways:
Stock Splits: If a stock split results in a non-whole number of shares for your holdings, you may receive fractional shares.
Dividend Reinvestment Plans (DRIPs): When dividends are reinvested rather than paid out as cash, brokers may issue fractional shares proportional to the dividend amount.
Mergers or Acquisitions: Shareholders might receive fractional shares as part of a merger or acquisition transaction.
Exploring the Benefits and Drawbacks of Fractional Shares
Fractional shares are becoming increasingly popular among young and novice investors.. While they offer significant advantages in terms of accessibility and flexibility, there are also some limitations to consider. Here’s an overview of the pros and cons associated with fractional shares:
Advantages of Fractional Shares
Accessibility: High-quality stocks often come with hefty price tags, sometimes ranging into hundreds or thousands of dollars per share. Fractional shares allow investors to own a part of these companies without needing a substantial budget. For instance, AIMS enables you to start investing with just US$500.
Diversification: By investing fractionally, you can distribute your investment across various companies and sectors, thereby minimizing your overall risk. Even with a modest amount like $100, you can hold stakes in several well-known companies.
Precise Investing: Fractional shares allow you to invest exactly what you have, ensuring that your money isn’t left idle in an investment account or money market fund. This provides greater control over your portfolio management.
Dollar-Cost Averaging: This strategy involves regularly investing a fixed sum (such as $50 or $100 monthly), regardless of market conditions. Over time, this can help average out the costs of acquiring shares.
Drawbacks of Fractional Shares
Limited Availability: AIMS offer 1000 fractional shares but it may not be the one you are looking for. So It’s essential to research which fractional shares you wish to invest in to ensure the availability.
Liquidity and Transferability: Selling fractional shares is easier as selling the whole shares. However, transferring fractional shares between brokerages is not feasible at AIMS.
Overtrading: The minimal cost of entering the market with fractional shares might lead some investors to trade too frequently with given leverage. Although this might seem appealing, beginners may benefit more from focusing on long-term strategies rather than pursuing short-term gains.
Lost Dividends: If your ownership stake in a share is very small, you might not get your dividend. For example, if your share entitles you to less than 1¢ in dividends (say 0.9¢), you might not receive any dividend payout.
Overall, fractional shares can be an excellent tool for new investors seeking access to high-quality stocks and diversified portfolios without a large investment. However, it’s essential to be aware of the potential challenges and plan your strategy accordingly.
For more insights on fractional shares and investing tips, subscribe to our newsletter for regular updates.