In this article, we’ll cover:

• Fractional shares vs. whole shares
• How fractional shares work
• The benefits of fractional share investing
• The disadvantages of fractional shares
• Things to know about fractional share investing

The difference between fractional shares and whole shares

A whole share is a single share of a company’s stock, an ETF, or some other investment. Shareholders might sell for a profit, receive dividends, and vote on important company issues. But whole shares can cost hundreds or even thousands of dollars, putting them far out of reach for many investors.

If you imagine a whole share is a pie, fractional shares are slices of that pie. The pie can be divided into a few slices or a great many. Fractional shares offer many of the benefits of whole shares at a lower purchase price. 

Here’s an example: 

• Alex wants to invest $100 in Company B, but a single share costs $1,000. 
• Alex’s brokerage offers fractional shares of Company B’s stock. 
• Alex invests $100 and receives a 0.1 share of Company B. ($100 / $1,000 = 0.1)
• When Company B’s stock price rises or falls, the value of Alex’s investment rises or falls proportionate to the fractional share. 

While fractional shares allow you to invest with less money compared to whole shares, they aren’t available at every brokerage, and they may come with certain fees and limitations.

How fractional shares work

If you invest with a brokerage firm that offers fractional shares, you can purchase them like you would any other investment, like whole shares of stocks, ETFs, or mutual funds.

Until 2019, it was virtually impossible to purchase fractional shares directly from a brokerage. Many retail investors, however, were priced out of higher-value securities in the stock market. So brokers created fractional shares of popular investments, some priced at only a few dollars, to woo younger, middle-income investors. Nowadays, many brokerage firms offer fractional shares of both stocks and funds. 

To create fractional shares, brokerages purchase full shares, slice them into fractions, and parcel out the slices to multiple investors. That’s why fractional shares typically can’t be transferred to a different broker if you switch investment firms; instead, your broker will usually buy back your fractional shares. In that case, you’ll owe taxes on any profit you make from selling your shares back to the broker. 

Fractional shares created through DRIPs, stock splits, and mergers

Fractional shares are sometimes created as a consequence of dividend reinvestment programs (DRIPs), stock splits, and mergers and acquisitions. In some cases, whole shares you own may become fractional shares.

DRIPs, which repurpose dividend payments to purchase additional shares of the same investment, result in fractional shares whenever share prices exceed dividend payments.

A type of stock split may also produce fractional shares. There are two types of stock splits: a forward stock split, in which more shares are created, and a reverse stock split, in which shares are consolidated to create fewer whole shares. The value of your overall investment doesn’t change; the only alteration is the number of shares you own. 

A reverse stock split might result in whole shares you own becoming fractional shares. Here’s a hypothetical example of it might work: 

• Imagine Jaylen owned two shares of stock in Company X, each worth $100. The total investment is worth $200. ($100 * 2 = $200) 
• Company X conducts a 1:4 reverse stock split. In a reverse split, shares are consolidated to create fewer overall shares. Thus, after a 1:4 reverse split, every $100 share is a 0.25 fractional share worth $100. A full share costs $400.
• The reverse split converts Jaylen’s two whole shares, worth $100 each, to two 0.25 fractional shares worth $100 each. 

When a company merges with another company or is acquired, fractional shares may also be created, depending on how the merger or acquisition is structured.

Benefits of buying fractional shares

The availability of fractional shares has opened new doors for many investors. It takes less money to invest in stocks, giving you access to a wider pool of investments, especially stocks with high share prices. As a result, you might be able to start investing sooner and find it simpler to diversify your portfolio. 

Key fractional share investing benefits include:

• Start investing with an amount that fits your budget
• Invest in stocks that match your interests and strategy
• Get access to investing in more expensive stocks
• Explore investments in more types of securities
• Find more options for portfolio diversification

Fractional shares allow you to start out small, but you can still potentially earn a return on your money. That’s especially true if you have a long time horizon for your investment. Even small beginnings can earn you money, and with the power of compounding, they can grow significantly given enough time.

Disadvantages of fractional shares

So what are the drawbacks of purchasing a fraction of a share? They vary significantly among brokerages; you may find differences in trading rules, costs, fees, and more. It’s always critical to do your research before investing, and fractional shares are no exception.

Potential disadvantages to consider include:

• Limits on when, how, and what you can sell
• Fees for trading fractional shares
• Lower dividend income and profits
• Lack of stock voting rights
• Risk of illiquid shares that are difficult to sell
• Tax consequences when changing brokerages

Fractions or full shares: multiple paths for your portfolio

Fractional shares may be worthy of careful consideration, especially for new investors. They can open opportunities to investing that align with your budget, allowing you to start investing and diversifying your portfolio more easily. At the same time, they can come with restrictions that could surprise an unwary investor. 

If you’re interested in fractional share investing, you’ll find options at many brokerages, like Stash. Take the time to do your research, and you may find yourself investing in the stock market with more confidence.

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Fractional shares FAQ

1. Do fractional shares add up to whole shares?

Yes, although not in your portfolio. The brokerage buys a full share, divides it into slices, and sells the slices to different investors. It is possible to buy enough fractional shares of one stock to equal a whole share. For example, if a stock was available to purchase as 0.25 fractional shares, buying four of those fractional shares would equal a whole share. (0.25 x 4 = 1)

2. Do fractional shares pay dividends?

If an investment pays dividends, fractional shareholders receive a proportional share. For example, if Stock D paid a dividend of $10 per share and you owned a 0.5 share, the dividend payment would be $5. ($10 * 0.5 = $5)

3. Is it better to buy fractional shares or whole stocks?

Ultimately, that’s a question every investor must answer for themselves. But fractional shares might be a good fit for your portfolio if you’re new to investing, or want more diversification in your portfolio without investing a lot more money. It’s also important to understand your brokerage’s rules and costs. In some cases, you might face limitations or fees that tip the scales away from fractional share investing.

4. Is it worth buying fractional shares?

The answer depends on your financial situation, your investment strategy, and the brokerage you’ve chosen. For example, you might discover fees that make fractional shares seem less worthwhile. Or you might want the freedom to transfer your portfolio; fractional shares are typically not transferable between brokerage firms, and liquidating them can have tax consequences.

That said, fractional shares offer a great deal of flexibility. To decide whether fractional shares are right for you, consider your long-term goals, brokerage fees and costs, and how closely its rules align with your financial strategy. And remember that all investments involve risk, including the risk that you could lose money.

5. Are ETFs available as fractional shares?

Sometimes. Each brokerage chooses the securities it will sell as fractional shares; some offer fractional shares in ETFs.

6. Can you sell fractional shares?

As a general rule, brokerages allow you to trade your fractional shares, although each has different rules and costs. But your brokerage may not guarantee liquidity. Liquidity measures how quickly and easily you can sell an investment without taking a loss. Lack of liquidity, or illiquid shares, can take longer to sell, and you might lose money. 

7. Are fractional shares included in DRIPs?

A DRIP uses dividends you earn to purchase more shares of the same security. DRIPs frequently result in fractional share ownership, because any given dividend payment might not be enough to buy a full share of stock.

How to invest in fractional shares with Stash

Learning how to invest in fractional shares can be simple with Stash. Just open an account, choose the investments that interest you, and Stash does the rest. Stash offers fractional shares of ETFs and single stocks, starting at any dollar amount. If you’re not sure where to start, you might try the Smart Portfolio, which creates a portfolio aligned with your risk profile. 

If you’ve ever wished you could get in on an exciting stock but found the share price too steep, you might want to consider fractional shares. Investing can be accessible when you take it one slice at a time.

The post What Are Fractional Shares? appeared first on Stash Learn.

Making micro-investments can break down the barriers of traditional investing and allow you to ease into the market at your own pace and budget. Additionally, you can use an automated investing app to do most of the work, so you can become a consistent investor without being an expert in finance or shouldering the expense of a financial advisor.

In this article, we’ll cover:

• How micro-investing works
• The rise of micro-investing
• Pros of micro-investing
• Cons of micro-investing
• How to start micro-investing

How does micro-investing work?

Micro-investment accounts usually offer fractional shares of ETFs and individual stocks. This allows you to purchase a portion of a share, making these investment options possible even if you don’t have the money to buy an entire share. And with automated investing, your investment app will regularly deposit money from your bank account into your investment account on a schedule you set, making it easy to continually add to your portfolio. 

On a practical level, here’s how micro-investing generally works: You open an investment account and link it to your bank account. Then the investment app allows you to deposit small amounts of money from your checking account into your investment account on a recurring weekly, bi-weekly, or monthly basis. Some platforms may offer features to help you increase the amount you invest bit by bit, like budgeting tools or a special debit card that offers stock rewards for making purchases or automatically rounding up your purchases to the nearest dollar amount and depositing the excess money into your investment portfolio. 

You have plenty of options when it comes to building and managing your micro-investing portfolio. Just like traditional investing, you can take a hands-on approach with self-directed investing, in which you choose the investments you’re interested in. Or you can use an investment app’s robo-advisor to guide you in choosing your portfolio according to your interests and risk profile. 

Making regular investment contributions like this, also known as dollar-cost averaging, is a widely recommended strategy because it can help investors stick to their investment plans, reduce the stress of investing, diversify the cost of shares, and even reduce the risks of stock market volatility. Even just contributing small amounts of money with micro-investing can add up over time.

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Examples of micro-investing

The beauty of micro-investing is that it adapts to your budget and financial circumstances. Here are a few examples of how it can work in practice:

• Say you create a 50-30-20 budget and determine you can put $50 a month into savings and investments. Since saving and investing serve different purposes, you decide to put $30 a month into a savings account for emergencies and $20 a month into an investment account. 
• Imagine you get a raise at work, and it increases your bi-weekly paycheck by $100. You want to put some of that extra money into building your financial future, so you set up your investment app to automatically deposit $50 from every paycheck into your investment account.
• If your investment app offers a bank account with a debit card that rounds up your purchases, you can deposit very small amounts of money daily when you make purchases. For example, say you spend $3.50 on your weekday morning coffee. Your bank account rounds that purchase up to $4.00 and deposits the extra $0.50 into your investment account. That gives you $2.50 a week, or about $10 per month, to put toward micro-investing just from your coffee purchases alone. 

The rise of micro-investments

There’s been a huge spike in micro-investment strategies and the use of micro-investing apps, especially among Gen X, Millennial, and younger investors who may not have the money to invest large sums of money. Because micro-investing removes some of the real and perceived barriers to conventional investing, more and more non-traditional investors are gaining access to the market. The additional ease and convenience of mobile-based investment apps has also captured the attention of younger investors, who may find it less intimidating to venture into the stock market with features like robo-advisors and automated investing. In fact, the micro-investing platform market is expected to increase at a compound annual growth rate of 21.1% from 2022 to 2032.

Benefits of micro-investing

In addition to helping make the idea of investing less intimidating, micro-investing offers some clear benefits:

• It’s accessible to people who don’t have much money to invest at the outset
• It introduces beginning investors to the stock market without a big commitment 
• It helps build consistent investing habits
• Micro-investing apps often have lower fees
• Automated investing makes it easier to invest regularly 

Disadvantages of micro-investing

As with any type of investing, there can be disadvantages and risks to micro-investing: 

• Investing a small amount of money generally means lower returns and dividends 
• Even low fees can eat away at your portfolio if you’re investing only $5 to $10 a month
• Micro-investing alone is unlikely to be effective for substantial long-term goals like retirement
• Options for investment accounts that offer fractional shares and investment apps may be more limited

How to start investing small amounts

When you’re ready to dip your toe into investing, it’s relatively easy to get started with micro-investing in a few simple steps:

• First, choose an investment app that offers fractional shares and a low initial minimum investment. Be sure you understand the fees associated with your investment account.
• Apply for an account. You’ll be required to fill out a secure questionnaire with information such as your age, current financial situation, future financial goals, investment horizon for retirement, and risk tolerance. 
• Once your investment account is open, link your bank account.
• Decide how much you’d like to invest and on what schedule, and set up automated investing in your investment app.

Start small with Stash

Stash is designed to help you get started investing, and it’s for everyone—from young, inexperienced investors to those who only have a few bucks to spare.

In fact, you can start investing with any dollar amount on Stash*. Plus, Stash can help you learn the ropes about investing as you go. 

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Start today with any dollar amount.

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The post What is Micro-Investing and How Do I Start? appeared first on Stash Learn.

Every year, companies hold shareholder meetings to discuss and vote on important topics that may affect the direction of the company, such as the board of directors, executive salaries, mergers and acquisitions, and more. 

In many cases, If you own one whole company share, you can vote. Generally speaking, each share you own translates to a vote. And the more shares you own in a company, the more of a say you have. But it’s important to remember that companies often issue millions, or even billions of shares, and your vote is proportional to the amount of shares you own. 

Fractional shares and voting rights

If you own fractional shares in a company, you will not have voting rights. If your investment gives voting rights, you get them once you own a full share. Investors who have voting rights will receive something called a proxy document ahead of the annual meeting. The proxy document has all of the resolutions to be voted on during the meeting and allows shareholders to vote without actually having to attend the meeting. You can typically vote by phone, mail, or online. 

What do shareholders vote on?

The proxy document might include a number of different items such as: 

• The board of directors. Shareholders have the right to vote on placing a candidate on the board of directors. The board is responsible for oversight of the company, and its general direction. 
• Executive salaries. Shareholders might also have the ability to vote on how much executives at the company are paid, and other matters pertaining to their compensation.
• Corporate actions. A company might decide to merge with or acquire another one. The company might hold a vote on those corporate actions to get approval from shareholders.
• Proposals. A proposal from a shareholder might also be put to a vote. Investors who own at least $2,000 in a company’s stock and who’ve been invested in that company for at least three years can submit a proposal for a particular issue to be included in a vote with the Securities and Exchange Commission (SEC). 

When you cast your vote, you can often respond in different ways. Shareholders typically vote for or against an issue, but they might also choose to abstain or withhold their votes.  Withholding or abstaining might affect the election, depending on various factors. For example, some votes may require a candidate to have a plurality of votes to win, while others may require a majority. (A plurality is when one candidate wins more votes than another, but not a majority. A majority is when one candidate wins more than half of all votes cast.) By withholding or abstaining from a vote, voters can potentially affect the election without necessarily voting yes or no. 

Classes of shares and voting rights

Companies often issue classes of shares that have different voting rights. For example, it’s common for companies to issue two classes, such as Class A and Class B shares. One of the classes would typically be for company insiders—such as company managers or executives or other employees at the company—and may carry extra voting rights compared to the other share class, which would be sold to investors outside the company.

Companies may also issue stock that entitles investors to ownership, but no voting rights. By issuing shares with different voting rights, founders can more easily keep control of their companies.

It’s up to each company to determine how to structure their classes of shares. Google’s parent company, Alphabet, for example, has three classes of shares. It issues Class B shares to founders and company executives. These shares have more voting rights than its Class A shares, which are issued to non-executives and outside investors. It also issues Class C shares, which have no voting rights. 

Good to know: Owning full shares in ETFs and mutual funds may also entitle you to voting rights at annual meetings, on matters that pertain to those funds.

Just as you exercise your civic duty by voting in elections, you should also consider exercising your right to vote in shareholder meetings. The way you vote can have a big impact on the company and your investment.

The post Find Out About Shareholder Voting Rights appeared first on Stash Learn.

Funds and public companies hold shareholder meetings annually. You can show up in person to vote on corporate matters such as who should join the company’s board, as well as executive salaries, director appointments, and more.

Or you can register what’s known as a proxy vote. A proxy vote is a way for you to vote without actually attending the meeting, essentially authorizing a manager of the company to register your voting instructions. Shareholders frequently vote by proxy, especially now that Covid-19 has temporarily suspended in-person meetings.

Shareholders who are eligible to vote on issues will receive proxy documents ahead of the company’s annual meeting, detailing what issues are up for a vote. They can then vote on resolutions in the proxy document online, by phone, or through the mail. 

Who can vote on company issues?

If you own one whole share of a company’s stock, you typically have the right to vote on issues related to that company as long as you are registered as a shareholder by something called the company’s record date. The record date is the official date by which you must be registered as a shareholder to participate in a company’s annual meeting.

For each share that you own in a company, you have one vote. So the more shares you own, the more of a say you can potentially have in the company’s future. 

You might own fractional shares, or pieces of whole shares in a company through an app like Stash. Once you own a full share in a company, you are generally entitled to voting rights for that investment.

What might shareholders vote on?

When you receive a proxy document from a company, it might include a number of different issues to vote on, including elections to the board of directors or proposals from other shareholders. Shareholders might also vote on corporate actions, such as mergers or acquisitions. 

Typically, shareholders can choose to vote for or against an issue. They may also choose to abstain or withhold their votes. Choosing to withhold or abstain from voting can affect the election of a director, depending on various factors, such as whether a candidate needs a plurality or majority to win an election, and whether someone is running unopposed. 

Good to know: Investors who own at least $2,000 worth of stock in a company can file a proposal for a particular issue to be included in a proxy vote with the Securities and Exchange Commission (SEC), as long as they’ve been invested in that company for at least three years.

If you’re an investor who has voting rights in a company, you can have a say on who runs that company and how they do it. So make sure you keep an eye out for proxy documents and submit them.

The post Understand the Ins and Outs of Proxy Voting appeared first on Stash Learn.

Think big-name technology companies, healthcare companies, corporate bonds, small-cap, big-cap, consumer goods. Creating a portfolio with small amounts of money is easy as opening an app on your phone or logging online.

Plus, you can invest according to your risk level and goals. Want to save for a down payment on a house? Ready to leap into opening your retirement account?

There’s no need to wait to accumulate that big pile of cash. You can start right now. Stash even has a tool called Portfolio Builder that can help you create a portfolio with a mix of investments according to your risk preferences.

(Find out more about fractional shares here.)

The best time to start investing is today. With fractional shares, you don’t have to wait for the “right time” to start. The time is now.

Sure, you’re starting out small. That’s okay. Start with any dollar amount  and invest in a company that you think represents the future. Invest a little in a bond fund to protect you against inflation. And then maybe a little in  an international fund that gives you access to global companies.

Even if you’re starting small, fractional shares can still offer you a return on your money and depending on your investment, dividends.

Little amounts can earn interest, and that interest can compound over time. Especially if your dividends are automatically reinvested through DRIP, which Stash offers.

For those who are looking to invest in the market but worry they don’t have enough to begin, fractional shares are a good way to get started.

How can I purchase fractional shares on Stash?

You can purchase fractional shares of stocks and exchange-traded funds (ETFs) on Stash.

Now is the time. Start now.

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