It takes more than a global pandemic to slow Apple (NASDAQ: AAPL) down. In its fourth fiscal quarter of 2020, the iPhone maker posted record revenue of nearly $ 65 billion, despite the iPhone 12’s launch being delayed until November. The company also set new third quarter revenue and earnings per share records. Investors rewarded Apple for its performance, pushing the share price up nearly 70% over the year.
Considering Apple’s record year, it seems crazy that you can buy the tech giant for just $ 1. If you view the current Apple stock price online, you’ll see that it’s trading at over $ 125 per share, after a four-way stock split in August. Even so, you can get Apple in your wallet for as little as $ 1 by buying fractional shares.
What are fractions of shares?
Fractions are purchases of shares in units of less than one. If you don’t have the money for a whole share, you can buy half a share for half the price. In Apple’s case, half a share would cost you around $ 62. But fractional shares aren’t limited to halves, quarters, or even eighths. If you wanted to buy a fraction of Apple for $ 1, you could. Assuming a price of $ 125, that would earn you 0.008 a share.
Fractional investing has only recently made its way into the mainstream. Not that long ago, if you wanted to buy fractions of shares, you had to do it through an investing app like Betterment or Acorns. But in 2020, two major brokerage firms – Fidelity and Schwab – both started to support fractional transactions.
Fidelity calls its fractional program “Stocks by the Slice” and Schwab’s offering is called “Schwab Stock Slices”. If you have a Fidelity account, you can buy over 7,000 US stocks and ETFs for as little as $ 1 each. With Schwab you can buy any S&P 500 business with a minimum purchase of $ 5.
How to buy fractional shares
As you may have guessed by now, you cannot buy fractions of shares on the open market. You need to go through a brokerage that specifically offers fractional investments. Keep in mind that the broker does the work behind the scenes to facilitate these transactions. You can think of it this way: If you and someone else place an order for half of an Apple stock, your broker buys a whole stock and allots you each of you.
This means that some details about fractional investing will vary from broker to broker. These details may include the time it takes to settle your trades and whether or not you are getting voting rights as a fractional shareholder. It also means that you cannot transfer your fractional shares to another brokerage. If you change brokerage houses, you will need to sell your fractional shares and transfer the money to cash.
You buy dollar amounts, not units
When you place a traditional share purchase order, you specify the number of shares you want as well as the price. The total value of the transaction is then calculated by multiplying these two data points. With fractional shares, you choose your share and indicate the dollar amount you wish to spend. The number of stocks you get is calculated as the amount of your investment (say, $ 1) divided by the current price of the stock. Basically you say “Give me $ 1 Apple” instead of “Give me a share of Apple”. This is why fractional investing is also sometimes referred to as dollar-based investing.
Create wealth with fractional shares
It’s good that you can buy Apple for $ 1, but here’s the real question: can you get rich with fractional shares? It’s hard to give a definitive answer, just because rich is a subjective word. But you can definitely get richer with fractional investment. This is a low risk starting point when you don’t want to throw several thousand dollars into the stock Exchange at the beginning.
The trick to building wealth with fractional stocks is to increase the dollar value of your purchases over time. Investing $ 5 a week is better than nothing, but it won’t make you rich in your lifetime. Increase your weekly purchase to $ 50, however, and the outlook improves. At this rate, you can build a six-figure portfolio in 20 years, assuming your stocks are growing in line with the market at 7% per year. Even when you spend $ 50 at a time, you still have to buy fractions to own high quality companies like Apple, Alphabet (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), and Facebook (NASDAQ: FB).
To do the first step
Fractional investing is attractive because you don’t need to save to start investing. You can invest in high-quality businesses now – with little more than spare change tucked away in your sofa cushions. This is the first step in creating wealth. The second step is to stick to it. You will see the momentum build soon enough.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link