New investors or those with little experience in buying stocks often believe they need to invest in low-priced stocks from companies that might be some of the weaker ones in the market because that’s what they can afford.
The best companies will obviously have the highest-priced stocks, which newer and inexperienced investors believe are too expensive for them to buy.
Most newbies will balk at buying Berkshire Hathaway (BRK.A) – Get Berkshire Hathaway Inc. Class A Report Class A stock, which on April 1 closed at $527,760 a share. Or maybe they will also pass on purchasing shares of Amazon (AMZN) – Get Amazon.com, Inc. Report at $3,269 a share. Shares of Google parent Alphabet (GOOGL) – Get Alphabet Inc. Class A Report may also be out of reach at $2,800 a share for these potential investors.
However, this idea that new and inexperienced investors should only purchase low-priced, possibly weaker stocks needs to be reconsidered.
Flexible and Inexpensive Buying Method
Several brokerages can offer these investors a more flexible and inexpensive method for buying large-cap, blue chip stocks like Microsoft (MSFT) – Get Microsoft Corporation Report ($309.65 a share on April 1), Facebook parent Meta Platforms (FB) – Get Meta Platforms Inc. Class A Report ($224.70 a share), Apple (AAPL) – Get Apple Inc. Report ($174 a share), Walt Disney (DIS) – Get Walt Disney Company Report ($137), as well as Berkshire, Amazon and Alphabet.
The answer to new investors’ fear of missing out on buying these expensive top stocks is fractional stock trading.
“There’s a misperception among new investors that they must buy low-priced stocks because that’s all they can ‘afford’ to buy. But low-priced stocks are often low-priced for a reason,” said Todd Campbell of TheStreet Smarts. “The focus should be owning the best companies. Often, those are the highest-priced stocks, not the lowest-priced. Fortunately, fractional investing means investors can own the Amazon’s, Google’s, and Berkshire’s and avoid pump-and-dump penny stocks.”
Who Has Programs for New or Inexperienced Investors
Fidelity Investments has a flexible and affordable fractional shares trading program known as Stocks by the Slice, which allows investors to make fractional stock purchases of more than 7,000 U.S. stocks and exchange-traded funds for as little as $1 per share with no commissions, no account fees or minimums to open a retail account.
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Of course, it’s a fractional purchase, so you’re not buying a full share of stock, just a corresponding percentage to the amount you are paying.
Robinhood (HOOD) – Get Robinhood Markets, Inc. Class A Report, the brokerage that has attracted newer, younger investors, has a fractional share purchase program similar to Fidelity’s. Investors can purchase fractional shares for a minimum $1 for U.S. stocks and ETFs with a market cap of over $25 million. Shares can be as small as 1/1,000,000 of a share according to its website. It also does not charge commissions and has no fees for opening an account, maintenance or having an inactive account.
Charles Schwab (SCHW) – Get Charles Schwab Corporation Report offers its Schwab Stock Slices fractional stock trading platform for investments as little as $5 for U.S. stocks on the S&P 500 index. Investors can buy a single slice of a stock or up to 30 slices per transaction.
Schwab allows up to a maximum $50,000 per transaction, but investors can use Schwab Stock Slices as often as they want. All shares are commission free.
Fractional shares will pay potential dividends proportionate to the percentage of share that is owned. Investors can also buy fractional slices at Schwab in custodial accounts for minors as a way to give a gift of stock ownership.
Not every brokerage offers fractional shares trading. TD Ameritrade doesn’t offer the platform, but might someday down the road, since it was purchased by Schwab. Others that don’t offer fractional stock trading include E*Trade and Merrill Edge.
Vanguard only allows fractional investments in mutual funds and ETFs.