Investing in the stock market is a fantastic way to grow your wealth, but sometimes, it can feel like you already need to have wealth just to get started.
Some stocks cost hundreds or even thousands of dollars per share, and most experts recommend investors own positions in at least 25 to 30 stocks to ensure their portfolios are properly diversified. Buying even single shares of that many companies could easily require several you to bring several thousand dollars or more to the task of building your base portfolio.
Tesla (NASDAQ: TSLA) is one of the two dozen or so most expensive stocks on the market today by share price, currently trading at around $930. But if you’re not in a position to buy shares in increments that large, there is an option that will allow you to invest in Tesla for as little as $1: fractional shares.
What are fractional shares?
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A stock’s price is the amount you’ll pay for one share of stock. But now, most brokerages and trading platforms will allow their clients to invest in fractions of a share. For example, you could buy one share of Tesla stock for around $930. Or you could buy one-tenth of a share for one-tenth of the price — $93.
The best part about fractional shares is that you are in control of the size of your investment. If you can only afford to add $50 to your portfolio this week, for instance, you could use it to buy a $50 slice of any stock you want.
Not only is this method a more flexible way to buy high-priced stocks, but it also makes it easier to build a diversified portfolio. Rather than spending thousands of dollars buying full shares of a single stock, you could open positions in 30 different stocks for as little as $30.
The other advantage of fractional shares is that you can ease into the world of investing. If you want to start buying stocks but are nervous about shelling out hundreds or thousands of dollars at a time, you can start small. Then, as you get more comfortable with the stock market, you can gradually invest more and more.
Are fractional shares right for you?
Buying fractional shares offers a slew of advantages to retail investors, but there are a few things to consider before you buy.
First, it’s still important to do your research before buying any stock. It can be tempting to buy riskier stocks when you’re only investing a few dollars, but bad investments are still bad investments. Regardless of how much you’re putting into them, keep your focus on stocks that have the most long-term potential.
Also, keep in mind that the less money you invest in a stock, the less you’ll profit from its returns (assuming it grows). There’s no harm in starting small, and it’s better to put a few dollars to work in the market than not to invest at all. But the purpose of investing is to materially increase your wealth, whether you intend to use those funds for retirement or some other purpose. And to produce significant results, you’ll need to invest consistently and expand your positions.
That said, fractional shares can be a fantastic way to invest in the stock market. Not only do they make it easier to invest in expensive stocks like Tesla, but they can also help investors on a budget get involved in the stock market. Choose quality stocks and invest consistently, and you’ll be on your way to generating long-term wealth.
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