Can You Buy Fractional Shares on Fidelity?

When contemplating the stock market and investment opportunities, a significant question often arises: Can you buy fractional shares on Fidelity? In today's financially diverse environment, investment doesn't have to mean buying whole shares of a stock or missing out on opportunities due to high share prices. This detailed guide will walk you through what fractional shares are, how they can be purchased through Fidelity, and the potential benefits and considerations associated with them.

Understanding Fractional Shares

What Are Fractional Shares?

Fractional shares are simply portions of a full share of a company. Instead of needing thousands of dollars to buy a single share of high-priced stocks such as Amazon or Google, fractional shares allow investors to purchase a fraction of a share instead, which can significantly lower the entry point for investing in premium stocks. This democratizes investing, making the stock market accessible to a broader range of people with varying budget levels.

How Fractional Shares Work

Fractional shares can be a result of stock splits, dividend reinvestment plans, or direct purchases. When a company performs a stock split, it can sometimes result in existing shareholders having fractional shares. Alternatively, dividend reinvestment plans, where dividends are reinvested into buying more stock, can also create fractional shares. Most notably, platforms like Fidelity offer direct purchase options for fractional shares, simplifying the process for individual investors.

How to Buy Fractional Shares on Fidelity

Fidelity, a major player in the financial services industry, offers a solution known as Fidelity's Stocks by the Slice®. This innovative feature allows investors to buy a dollar-based amount of any stock listed on the S&P 500, rather than purchasing whole shares. Here’s how you can get started:

Step-by-Step Guide to Buying Fractional Shares

1. Open a Fidelity Brokerage Account
   If you’re not already a Fidelity customer, you’ll need to open a brokerage account. This can be done online and involves providing some personal information, funding your account, and deciding the account type that best fits your investment goals.

2. Choose the Stock
   Once your account is set up, use Fidelity's platform to select a stock you’re interested in. If you're keen on purchasing fractional shares, focus on stocks available through the Stocks by the Slice® program.

3. Select Your Purchase Method
   Instead of entering the number of shares you want to buy, you can enter the dollar amount you wish to invest. Fidelity allows for as little as $1 in fractional share purchases.

4. Execute the Purchase
   Confirm your trade details including the stock ticker, investment amount, and total cost. Execute the trade order and once completed, your account will reflect your ownership of fractional shares.

Example of Fractional Share Purchase

Consider a stock that trades at $3,000 per share. An investor with $300 to invest can own 0.1 shares of that stock through fractional investing rather than waiting until they have enough to purchase a whole share outright. This allows the investor to earn returns proportionate to their 0.1 share.

Advantages of Buying Fractional Shares on Fidelity

Accessibility and Diversification

1. Lower Cost of Entry
   One of the foremost benefits of buying fractional shares is the lower barrier to entry. Investors can start investing with smaller amounts of money, making it easier to get involved in the stock market.

2. Portfolio Diversification
   Investing in fractional shares enables diversification by allowing investments across a more extensive range of stocks without needing significant capital. This can mitigate risk as it's less likely that all sectors perform poorly simultaneously.

Flexibility and Automation

1. Automatic Investments
   Fidelity’s platform allows for recurring investments, enabling investors to automate their investment strategy. For example, you can set it to purchase $50 worth of Apple's stock every month.

2. Customizable Portfolio Construction
   Fractional shares facilitate the creation of a personalized portfolio that aligns closely with your risk tolerance, investment goals, and financial situation.

Key Considerations When Buying Fractional Shares

Potential Limitations

1. Limited Availability
   Not all stocks are available for fractional share buying. Fidelity primarily offers stocks from the S&P 500 in fractional shares, and investors will need to ensure the stocks they wish to buy are on that list.

2. Voting Rights
   Typically, fractional shareholders have limited rights compared to whole shareholders, such as limited voting power on corporate decisions. It’s important to know any rights and restrictions associated with fractional shares.

Market Risks

1. Market Volatility
   As with any investment in the stock market, fractional shares are not insulated from market fluctuations. Investors should be aware of the inherent risk of loss and the importance of long-term strategic planning.

2. Liquidity Issues
   Selling fractional shares can sometimes be more complex than full shares due to lower liquidity. It’s vital to consider how quickly you might need access to your invested funds.

Frequently Asked Questions

Are Fractional Shares a Good Investment?

Fractional shares can be an excellent choice for those wanting to diversify their investment portfolio without needing a large amount of capital upfront. They allow new investors to dip their toes into the stock market and experience potential gains. However, as with any investment, due diligence and an understanding of the market are critical.

How Are Dividends Paid on Fractional Shares?

Dividends are usually paid proportionally to the fraction of the share owned. For example, if a company declares a dividend of $1 per share and you own 0.5 shares, you would receive $0.50.

Can You Sell Fractional Shares?

Yes, fractional shares can be sold through Fidelity’s platform with relative ease, although it’s important to note they might not be as readily liquidated as whole shares due to their fractional nature.

Conclusion

Buying fractional shares on Fidelity via the Stocks by the Slice® program represents an excellent opportunity for both novice and experienced investors to diversify their portfolios without significant capital. By allowing individuals to invest in high-priced stocks without needing to buy full shares, fractional investing democratizes access to the stock market. However, like all investment strategies, it requires careful consideration of risks, potential limitations, and personal financial goals. For more insights into investment strategies and options, explore more resources provided on our website.