Best Fractional Shares Brokers: A Comprehensive Guide
Fractional shares are a fantastic tool for investors who want to diversify their portfolios but might not have enough capital to purchase full shares of high-priced stocks. Fractional share investing allows investors to buy a portion of a share, rather than the entire stock. This opens up access to expensive stocks like Amazon, Tesla, or Google, which might otherwise be out of reach. Several brokers offer fractional share investing, each with its own features and benefits. In this guide, we will cover the best fractional share brokers, evaluating them on factors like fees, account types, available stocks, ease of use, and more.
What Are Fractional Shares?
Before diving into the brokers, it’s essential to understand what fractional shares are and why they matter.
A fractional share is a portion of a full share of stock. For example, if one share of Amazon costs $3,000, and you only have $300 to invest, you could buy 0.1 of a share, or $300 worth. This makes investing in high-priced stocks accessible to all investors, regardless of their budget.
Fractional shares allow investors to:
- Diversify portfolios: Even with a small investment, investors can own parts of multiple high-value stocks.
- Invest in expensive stocks: Investors can buy shares of companies like Tesla, Amazon, or Google without having to invest thousands of dollars.
- Control risk: By being able to buy smaller amounts, you can reduce the risk of losing large sums of money.
Top Fractional Shares Brokers
Here’s a detailed analysis of the top brokers that offer fractional share investing.
1. Charles Schwab
Overview: Charles Schwab offers fractional share investing through its “Schwab Stock Slices” program. This allows investors to purchase a slice of stocks in major indices like the S&P 500.
Key Features:
- Fractional shares available for major companies: Schwab allows you to purchase fractional shares in all S&P 500 stocks for as little as $5 per slice.
- No commission fees: Schwab charges no commissions for buying or selling stocks, including fractional shares.
- Ease of use: Schwab’s platform is user-friendly, making it simple for beginners to start investing.
- Automatic investments: Schwab offers an automatic investment plan for fractional shares, making it easy to build a diversified portfolio over time.
- Reinvestment option: Investors can set up automatic dividend reinvestment for fractional shares.
Drawbacks:
- Limited stock options: Schwab’s fractional shares program only allows for investments in S&P 500 stocks, meaning some popular tech stocks or other individual equities are not available.
- No fractional ETFs: Schwab does not offer fractional ETFs, limiting portfolio diversification for some investors.
Who Should Use Schwab? Schwab is ideal for beginner investors who want to start small with diversified, low-cost investments in the S&P 500.
2. Fidelity
Overview: Fidelity offers fractional share investing through its “Stocks by the Slice” program. This allows you to buy fractional shares of stocks and ETFs, giving investors even more flexibility in their portfolios.
Key Features:
- Fractional shares of stocks and ETFs: Fidelity allows fractional purchases in over 7,000 stocks and ETFs.
- Minimum investment: The minimum amount needed to invest is $1, making it accessible to virtually all investors.
- No commission fees: Fidelity charges no commissions for buying or selling fractional shares.
- Reinvestment options: Fidelity also offers automatic dividend reinvestment for fractional shares, which is an excellent option for long-term investors.
- Fractional ETFs: In addition to individual stocks, Fidelity also allows for fractional investments in ETFs, further diversifying your portfolio.
Drawbacks:
- Only available on the mobile app or website: While fractional shares can be bought through Fidelity’s platform, this feature is only available online or through the mobile app, not via telephone or in-person brokerage services.
- Limited international stocks: While Fidelity offers a wide range of U.S. stocks and ETFs, international options for fractional shares are limited.
Who Should Use Fidelity? Fidelity is perfect for investors who want to build a diversified portfolio with fractional shares of both stocks and ETFs. The $1 minimum investment is great for those starting out with smaller amounts of capital.
3. Robinhood
Overview: Robinhood is one of the most popular brokerage platforms, especially among younger investors. It offers fractional share investing for both stocks and ETFs, making it a great choice for novice investors.
Key Features:
- Fractional shares for stocks and ETFs: Robinhood allows you to buy fractional shares of over 5,000 stocks and ETFs.
- Minimum investment: No minimum investment is required, so you can invest as little or as much as you want.
- Zero commission fees: Robinhood does not charge commissions for buying or selling fractional shares.
- Reinvestment options: Robinhood offers automatic dividend reinvestment, which is ideal for long-term investors looking to compound their gains.
Drawbacks:
- Limited research tools: Robinhood’s platform is simple to use, but it doesn’t offer as many research tools as some other brokers, which could make it challenging for more advanced investors.
- No retirement accounts: While Robinhood does offer standard brokerage accounts, it doesn’t have many retirement account options like IRAs.
Who Should Use Robinhood? Robinhood is an excellent choice for investors who want a straightforward, no-fee platform to invest in fractional shares, especially for those who want to keep things simple.
4. Merrill Edge
Overview: Merrill Edge, a Bank of America subsidiary, offers fractional shares through its “Merrill Guided Investing” program. While its fractional shares offering is more limited compared to others, it is still a viable option for Bank of America customers.
Key Features:
- Fractional shares for individual stocks and ETFs: Merrill Edge allows fractional share investing in select stocks and ETFs.
- $1 minimum investment: This makes Merrill Edge accessible to investors with small amounts of capital.
- No commissions: Like most of the other brokers, Merrill Edge does not charge commissions for fractional share transactions.
- Bank of America integration: If you are already a Bank of America customer, Merrill Edge makes it easy to link your bank account and manage your investments.
Drawbacks:
- Limited stock and ETF choices: Merrill Edge offers a more limited selection of fractional shares compared to other brokers.
- Fees for managed portfolios: If you choose the managed investment options, there are advisory fees, which could eat into your returns.
Who Should Use Merrill Edge? Merrill Edge is great for Bank of America customers who want to invest in fractional shares and are comfortable with a more limited selection of assets.
5. SoFi Invest
Overview: SoFi is a newer player in the brokerage space but has quickly gained popularity thanks to its user-friendly platform and broad range of investment options, including fractional shares.
Key Features:
- Fractional shares for stocks and ETFs: SoFi Invest offers fractional shares for both individual stocks and ETFs, which is great for portfolio diversification.
- $1 minimum investment: SoFi’s minimum investment requirement is very low, making it ideal for beginners with small amounts to invest.
- No commissions: SoFi charges no commissions on stock and ETF trades, including fractional shares.
- Easy-to-use mobile app: The SoFi app is simple and intuitive, making it easy for beginners to invest.
Drawbacks:
- Limited account types: While SoFi offers individual brokerage accounts, it has limited retirement account options compared to other brokers.
- No international stocks: SoFi does not offer fractional shares for international stocks, limiting its diversification for those interested in global exposure.
Who Should Use SoFi Invest? SoFi Invest is best for beginner investors who want to start with fractional shares and are looking for an easy-to-use platform with no commissions.
How to Choose the Best Broker for Fractional Shares
When choosing a fractional share broker, consider the following factors:
- Fees: Most brokers charge no commissions for fractional shares, but always check for other hidden fees, such as account maintenance or withdrawal fees.
- Minimum investment: Some brokers require a $1 minimum, while others have higher requirements. Choose a broker that fits your budget.
- Selection of stocks and ETFs: Look at the range of available stocks and ETFs. Some brokers offer only S&P 500 stocks, while others allow fractional investments in thousands of individual stocks and ETFs.
- Platform ease of use: A clean, intuitive platform is essential, especially if you’re a beginner. Ensure the broker’s app or website is user-friendly.
- Automatic investments: If you want to build a long-term portfolio, consider brokers that allow automatic investments and dividend reinvestment.
Conclusion
Fractional share investing is an excellent option for new and experienced investors alike. It opens up opportunities for diversification, even with a limited budget. The best broker for you will depend on your needs and preferences.
- Charles Schwab is great for beginners seeking access to S&P 500 stocks.
- Fidelity offers a broad range of investment options, including ETFs, with a low $1 minimum.
- Robinhood is ideal for those who want a simple, commission-free platform.
- Merrill Edge works well for Bank of America customers looking for fractional shares.
- SoFi is perfect for new investors who value simplicity and low fees.
Each broker has its strengths, so choose one based on the stocks you want to invest in, the fees, and the level of support you need.
