Fractional Shares

Fractional shares let you own a piece of a stock without buying a whole share. This makes expensive stocks like Amazon ($150/share) or Berkshire Hathaway ($550,000/share for Class A) accessible to everyone.

How It Works:

• You have $100 to invest
• Stock costs $200/share
• You buy 0.5 shares (half a share)
• You own $100 worth of the stock

How You Get Fractional Shares:

1. Direct Purchase: Apps like Robinhood, Fidelity, and Charles Schwab allow fractional share buying. Buy any dollar amount, get fractional shares.

2. Dividend Reinvestment (DRIP): When dividends are reinvested, you often buy fractional shares.

3. Stock Splits: A 3:2 split on 5 shares gives you 7.5 shares (7 whole + 0.5 fractional).

4. Dollar-Cost Averaging: Investing $100/month in a $73 stock gives you 1.37 fractional shares.

Benefits:

✅ Accessibility: Invest in Amazon with just $10 ✅ Diversification: Spread $1,000 across 20 stocks even if each costs $500/share ✅ DCA-Friendly: Invest exact dollar amounts regardless of stock price ✅ No Cash Drag: Every dollar is invested, no leftover cash sitting idle

Limitations:

❌ Can't Transfer: Most brokers don't allow transferring fractional shares to another broker. They'll sell them and give you cash. ❌ Voting Rights: You get proportional voting rights, but fractional owners rarely participate in shareholder votes. ❌ Limited Availability: Not all brokers offer fractional shares. ❌ Corporate Actions: Can complicate stock splits, mergers, or spin-offs.

Brokers Offering Fractional Shares:

• Robinhood (no minimums)
• Fidelity (no minimums)
• Charles Schwab ($5 minimum)
• Interactive Brokers ($5 minimum)
• M1 Finance (no minimums)

Tax Treatment: Fractional shares are taxed exactly like whole shares:

• Capital gains when you sell
• Dividends taxed as income
• Same cost basis rules apply

Example Portfolio: You have $1,000 and want 5 stocks:

• Apple ($180/share): $200 → 1.11 shares
• Microsoft ($370/share): $200 → 0.54 shares
• Google ($140/share): $200 → 1.43 shares
• Amazon ($150/share): $200 → 1.33 shares
• Tesla ($250/share): $200 → 0.80 shares

Stock Splits and Fractional Shares: If you own 7 shares and there's a 3:2 split, you get 10.5 shares (7 × 1.5). Some brokers keep the 0.5 fractional share; others pay you cash.

Berkshire Hathaway Example: Class A shares cost $550,000. Fractional shares let you own $100 worth (0.00018 shares) instead of needing half a million dollars.

The Bottom Line: Fractional shares democratize investing. No longer do you need thousands of dollars to diversify. Buy any stock with any amount of money.