Now You Can Buy Amazon.com, Inc. Over Your Daily Latte
Say you want to buy shares of Amazon.com, Inc. (NASDAQ:AMZN). You’d currently have to fork out more than $2,000 for one share, which makes it extremely difficult for smaller investors. Alternatively, you could take out a line of credit to buy the stock, but that doesn’t really make sense.
But now there’s a way to invest in high-priced tech stocks like Amazon and Alphabet Inc. (NASDAQ:GOOG) for cheap.
I’m talking about fractional share investing, a scenario in which you can buy less than a full share of a stock. For instance, you could buy just $10.00 of Amazon stock. This recently introduced rule allows many more investors to buy high-priced stocks, specifically those who are just beginning, who have small accounts.
Say you desperately want to impress people at a party. You can do that now by talking about how you own AMZN stock.
The idea of fractional share ownership makes a lot of sense. For example, when you purchase a car or house, at first you only need a down payment representing a fraction of the total cost. When you purchase large durable goods such as furniture or appliances, you only have to come up with a deposit in the beginning.
The best thing about fractional share ownership, unlike buying a car or house, is that you only buy as much of the stock as you can afford.
Here’s How to Create a DIY FAANG Portfolio
The best thing about fractional shares is the unlimited possibilities it provides, especially for the beginner investor with small accounts, or simply those who want to control the extent of their risk.
Let’s say you love the group of five tech stocks known as the FAANG stocks: Facebook, Inc. (NASDAQ:FB), Amazon, Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX), and Alphabet—also known as Google.
Chart courtesy of StockCharts.com
Amazon stock costs more than $2,000 per share while Alphabet will set you back about $1,500 for a share. The total cost of the five tech stocks is more than $4,500. This makes it out of reach for many investors who are just starting out.
But with fractional shares, the cost is no longer a factor. All you need to determine is how much you want to invest in the shares.
If you only have $20.00 to invest, you could buy a fractional share of Amazon stock, representing about 0.9% of one share. And if you are wondering about the commissions, some brokerages offer zero or minimal trading fees, which makes fractional investing worthwhile.
Now say you want to build a FAANG stock portfolio. Assume you invest in 1/100 of each stock.
|FAANG Stock||1/100 Share Price|
Facebook, Inc. (NASDAQ:FB)
|Amazon.com, Inc. (NASDAQ:AMZN)||$21.68|
|Apple Inc. (NASDAQ:AAPL)||$3.24|
|Netflix, Inc. (NASDAQ:NFLX)||$3.83|
|Google, aka Alphabet Inc (NASDAQ:GOOG)||$15.25|
(Source: Google Finance, last accessed February 14, 2020.)
The total outlay would be $46.15, and you would own 1/100 of the FAANG stocks. You would even receive your portion of the dividends, if there are any.
Where to Buy Fractional Shares
Robinhood Financial LLC allows you to start with as little as a dollar. You can buy a fractional share as small as 1/1,000,000 of a share with no commissions. The only restrictions are that the stock price must be over $1.00 and the market cap must be over $25.0 million.
Major online brokers that offer—or will soon offer—fractional shares include Interactive Brokers Group, Inc. (NASDAQ:IBKR), Fidelity Investments, and Charles Schwab Corporation (NYSE:SCHW).
If you prefer the newer online brokers, there are numerous sites like Stockpile, Inc., Motif Investing, Inc., and Folio Investing (aka Folio Financial, Inc.). The only thing is that these smaller venues have a limited choice of stocks available for fractional investing.
The potential of fractional share investing makes a whole lot of sense for new investors and those with small accounts.
The next time you are thinking of shelling out $5.00 or more for a latte, you may instead want to invest that money in a fractional share of a high-priced tech stock. Do that five times a week and you will eventually own a full share.