If you’ve always wanted to invest in a company with a high share price, but have been put off by the cost, then fractional shares – smaller parts of a larger share – could be for you. But do you know how to purchase them?
Well, my guide will tell you what fractional share investing is, its benefits and downsides, and how to buy fractional shares UK.
Also consider: Best Stocks and Shares to Buy Now
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- Choose a stock broker or investment platform and open an account – I have detailed the best options below
- Deposit funds to your investment account – Do this with your payment method of choice
- Find fractional shares that you want to invest in – Search for the fractional shares you wish to buy
- Input the number of fractional shares you wish to purchase – The broker will tell you how much your fractional shares are worth
- Make your purchase – Checkout with your fractional shares
As mentioned, many of the UK’s biggest brokers, such as Hargreaves Lansdown or IG, don’t support the trading of fractional shares.
However, there are a few different brokers for you to choose from, each with its own set of benefits, so keep reading to find out which broker would best suit your investing needs.
Best trading platforms for fractional shares UK
A list of the trading platforms offering fractional shares, at a glance includes:
1. Decide on a broker and open an account
First off, you need to decide which broker you will open an account with to trade fractional shares.
You should ideally compare the different features brokers offer before opening an account. For example, if you were planning on trading large volumes of fractional shares, then you may want to consider a brokerage account with lower trading fees.
Or, if you are still a beginner investor, or don’t feel as confident making your own investments, then you may want to think about opening an account with a broker that offers a range of educational materials, or a social investing feature.
When you’ve decided on a broker, you will typically be asked to supply information about yourself so your identity can be confirmed. This could range from your name and nationality to your National Insurance or passport number.
It’s important to keep in mind that not all brokers offer access to fractional shares – I will discuss some of the best UK brokers that offer fractional shares later in this guide.
2. Deposit funds to your brokerage account
Now that you’re all set up, the next step is depositing funds to your new trading account.
This is usually a simple process – all you need to do is select your method of deposit, and then input the value you wish to hold in your account.
It’s worth keeping in mind that different brokers will have varying rules surrounding the method of deposit – some may support debit or credit cards, while some may only support bank transfers.
You should also be wary of how much money you deposit in the first place. For example, you are unlikely to earn interest on any money held uninvested in a trading account.
This means that, due to high rates of inflation, your money’s purchasing power could be eroded in real terms if you hold it uninvested in your account.
3. Find a fractional share to invest in
The next step is deciding which companies you want to purchase fractional shares for.
Fractional shares are typically a useful way to purchase a stake in a company with expensive shares, so you may want to consider one of these. Some of the most expensive companies on the stock market include:
| Company Name | Share Price (as of market open 4 August 2022) |
|---|---|
| Berkshire Hathaway | $444,294.26 |
| NVR | $4,286 |
| Seaboard | $4,089.03 |
| AutoZone | $2,150.91 |
| Bookings Holdings | $1,900.83 |
4. Input the number of fractional shares you wish to purchase
When you’ve eventually figured out which company you want to buy fractional shares for, the next step is inputting the number of shares you wish to purchase.
You need to make sure you’ve turned on the fractional share feature in your brokerage account before you make the purchase. This will vary between brokers – some may require you to make a request before you can access this feature.
Once you’ve done this, simply input the volume of shares you wish to purchase, and then you’re ready to go.
5. Make the purchase
Now, you’re finally ready to try your hand at fractional share investing.
Purchasing fractional shares is simple enough – just make the purchase and you should see your new shares move into your portfolio.
The hard work doesn’t stop with fractional share ownership though – you should keep a close eye on your shares and monitor any price movements.
This is especially the case if you’re investing for income rather than growth since you will need to capitalise on any upward price swings and sell your fractional shares for a profit when the time is right.
If you’re unsure when the right time to sell your fractional shares is, you should seek independent advice. Investment advice from a financial advisor could help you to decide whether to hold your fractional shares for dividends, or sell them on for a profit.
When you invest in a company traditionally, you will typically make an order for whole shares, and the number of shares you purchase will determine the price.
Meanwhile, as the name suggests, fractional shares allow you to purchase just a fraction of a whole share.
Fractional shares give you the chance to invest in companies with a typically higher share price for a “discounted” rate if you don’t have enough capital to meet the initial share price.
Of course, they aren’t actually discounted; you are buying part of a whole share.
When you purchase a fractional share, it is your broker that splits the share itself. Indeed, your broker will purchase a full share of a company from a stock market such as the London Stock Exchange, split it, and then sell the fractions to investors.
Any investment returns and dividends are then split accordingly, too.
As an example, as of 4 August 2022, the Tesla share price is around $930 (around £770). If you don’t have that much money to invest, you may decide to buy a “fraction” of a Tesla share.
Some brokers may also offer exchange-traded funds (ETFs) as fractional shares. The process for purchasing ETF units is exactly the same as for shares.
Dividends on fractional shares
While some companies do pay dividends to fractional share investors, the payments are proportionate to the number of fractional shares you purchased.
For example, if you own half a share, you will get 50% of the dividends that a full share pays.
Of course, not all companies pay dividends in the first place, and if they don’t, they still aren’t going to if you invest through fractional shares.
Dividend Reinvestment Plans
When you trade fractional shares, you can also take advantage of what is known as a dividend reinvestment plan (DRIP).
This is a service that allows you to automatically reinvest your dividends into extra fractional shares.
These DRIPs are typically set up by your broker, and allow you to compound your returns into more shares over time, which then pay more dividends themselves.
Even though dividends paid into DRIPs focus on automatic fractional share investment, they are still taxed as normal dividends.
By now, you’re probably ready to purchase your very own fractional shares. However, you should consider the downsides, as well as the benefits, before you make an investment.
What are these benefits and downsides though? Well, continue reading my guide to find out.
Benefits of fractional shares:
- Beginners can start investing with smaller sums
Since you can decide how much you want to invest, a fractional share makes it easier for beginners to start investing with smaller sums of money.
For beginners, companies with a high share price, like Tesla, Amazon, or Apple, can seem daunting.
By allowing beginners to invest in their favourite companies without taking a risk worth a large sum of money, fractional shares open the door to investors with limited funds.
- They allow you to invest in expensive companies with less money
There are many companies out there that are so expensive that it can be difficult to justify paying such a large sum of money for a single share.
And, of course, if you only purchase one share, your returns will be lower if things go your way than they would if you purchased many shares.
But, unless you’re wealthy, chances are you’re not going to be able to purchase multiple shares in an expensive company.
So, a fractional share has a far lower barrier to entry than traditional shares.
- Fractional shares allow you to cheaply diversify your portfolio
A diversified portfolio can be a sensible way to mitigate risk on your investments.
So, by being able to purchase shares in companies that would typically be too expensive to invest in, you can diversify your portfolio with companies you wouldn’t normally consider adding to your portfolio.
Disadvantages of fractional shares:
- It may be difficult to access fractional shares
First off, not all brokers offer access to fractional shares in the first place.
In fact, some of the largest brokers in the UK, including Hargreaves Lansdown and IG, don’t allow users to purchase fractional shares at all.
So, if you are already established with a broker, or you’re simply looking for a new one, you may find your range of choices limited.
- It may be harder to sell fractional shares
As previously mentioned, fractional shares are made by brokers purchasing full shares and then selling the divided share to investors.
This means that the only way to sell fractional shares is through a brokerage, which they then hold until they can form a full share.
If there isn’t enough demand for the company, selling the share back to the broker may be more difficult, or take longer, than it would to sell a traditional share.
- You may quickly incur many fees
Since fractional shares will typically still be charged with the same fee structure as traditional shares, you may end up racking up fees and charges.
In fact, fractional shares may encourage you to invest in many different companies due to lower upfront trading costs, which could end up costing you more in fees or commission in the long run.
- You may miss out on dividend payments
If you have purchased fractional shares for a company that typically pays dividends, but your fraction of that share is too small, you may not be paid dividends at all.
This is because the dividend payment would be so negligible that it wouldn’t make sense to pay it. Missing out on dividend payments can sometimes even be the case if you’re enrolled on a dividend reinvestment plan (DRIP).
Even though this isn’t much to miss out on, it’s still your money, and it could compound over time.
- It may be worth waiting for a stock split
While brokers typically divide stocks for their investors, some companies may decide to split their shares themselves. This is aptly named a “stock split”.
Companies perform stock splits in order to increase the number of shares on the stock market to boost the stock’s liquidity.
This leaves the company’s market capitalisation completely unchanged since the price for each share is reduced, not the value of the total shares themselves.
Stock splits are typically done according to ratios. So, if a company split 20:1, and you owned one share in that company, you would own 20 after the stock split, with the total value of your investment staying the same.
The main purpose of a stock split, however, is to lower the share price, making the company more affordable to investors.
So, if you’ve just purchased fractional shares, you could end up losing out if the company then decides to do a stock split.
An example of a company that recently split its stock is Amazon, which carried out a 20:1 split in June 2022.
Some of the most frequently asked questions about buying fractional shares answered.
Can I buy fractional shares for any stock?
Yes, you can buy fractional shares for any stock as long as the value of your order is $1 at a minimum. Of course, not all brokers allow you to purchase them in the first place, so you should double-check that your broker offers fractional shares. Our top broker pick is eToro.
How do I invest in fractional shares?
To invest in fractional shares, you first need to ensure that your broker offers fractional shares. If your broker does allow you to purchase them, you should see an option to turn on the purchasing of fractional shares.
Then, you simply need to input the number of shares you wish to buy and make the purchase. Our top broker pick is eToro.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
