Are the stocks you’re interested in buying more than you want to pay? You do have the option to buy a portion of a stock, rather than the whole thing. Fractional shares are “pieces” of a single stock. These are also known as stock slices, portions, or slivers. Fractional shares allow individuals to purchase stocks using dollar amounts rather than number of shares. Fractional shares result from the following:
Depending on corporate profits, shareholders might receive stock dividends. They can accept these in cash or reinvest them in more stock through a dividend reinvestment plan (DRIP). DRIPs often create fractional shares.
When a company splits its stock, investors receive more shares, based on a ratio. For instance, a 3:2 stock split gives an investor three extra shares for every two shares owned. But this isn’t always a round number and can lead to fractional shares.
Mergers and Acquisitions
Stock is traded when companies merge or are acquired. Such exchanges might be based on a trade ratio. For instance, five shares of Company A might be traded for three shares of Company B, a process that often creates fractional shares.
Fractional Share Purchase Programs
Some brokerages offer clients the ability to purchase fractional shares of certain stocks.
Fractional shares allow those who are just starting out to build their portfolios by investing a specific amount of money in stocks. However, not all stocks come in fractional shares. It’s also important to note that in some cases there could be less demand for your fractional shares when it comes time to sell, and certain brokers might charge a fee for each fractional share transaction.
As we work together to continue building on your investment strategy and discuss which investments might be best for you, fractional shares may be a good option. Let's schedule a call to talk.
This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.
All investing involves risk, including the possible loss of principal. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost. There is no assurance that any investment strategy will be successful.
Fractional Shares, Simplified
May 16, 2023