One of the basic tenets of investing is to diversify your portfolio in order to hedge against market risk. This can be hard to do if you are just starting out or have a limited amount of money to invest. However, investing in fractional shares opens up opportunities to purchase portions of higher priced stocks with the money you have on hand. We’ll take a deep dive into how investing in fractional shares works at Fidelity and answer the basic questions needed to help you decide if this approach is right for you.
How to Buy Fractional Shares on Fidelity
Buying fractional shares at Fidelity is quite simple. Investors have access to more than 7,000 U.S. stocks and ETFs for fractional share trading. Fidelity offers several types of accounts which investors can use to buy fractional shares and makes it easy to start investing with low fees and low minimum investment requirements.
Step 1: Open a Fidelity account. Opening an online account at Fidelity is quick and easy. You will need to provide your basic personal information and select the type of account that you want to open.
Step 2: Log in to your Fidelity account. Once you have opened an account with Fidelity, you will need to log in and fund your account. Remember, fractional share trading takes place in real time, so the funds will need to be settled and available in your account in order to place a trade.
Step 3: Click the “Trade” tab. The “trade” tab is at the top left of your Fidelity dashboard. Once you click on “trade,” a dropdown menu will open with a form to fill out regarding what type of trade you’d like to make.
Step 4: Change setting from “Shares” to “Dollars.” By selecting the “Dollars” setting, you will be able to buy fractional shares. This will base your order on a specific dollar amount, instead of buying a specific number of shares. Dollar amounts can be entered out to two decimal places, for example $50.75. The order is then converted into shares out to three decimal places and rounded down to the nearest decimal.
Step 5: Submit your order. Fractional share orders are entered as market orders or limit orders, and are only good for the day. At the bottom of the trading form, you will then click “Preview order.” This will lead to a confirmation screen where you can edit, cancel, or place the order. Fractional share trading is done in real time, during market hours, so you will know your share price.
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What You Need to Open a Fidelity Brokerage Account
To open your new account at Fidelity, you will need to provide your basic personal and financial information. You can also choose the type of account that you’d like to open, depending on your financial investing needs and goals. The following Fidelity retail accounts are approved for buying fractional shares:
- Standard brokerage accounts
- Individual retirement accounts
- Youth account
- Health savings accounts (HSAs)
- BrokerageLink accounts (offered through some employer plans)
When opening your account online, you will be asked to provide personal and contact information:
- Full name
- Social Security number
- Date of birth
- Phone number
- Email address
Besides providing your personal information, you will be asked to provide your financial information. This will include particulars regarding your current financial situation, as well as your investing goals. These are the “know your client” questions that Fidelity must ask to ensure you’re being matched to investments that are appropriate for your financial situation and risk tolerance. As part of this process, you may even choose to link your current bank account or use mobile deposit in order to fund your Fidelity account more quickly. That said, sending a check in the mail is also an option.
The Benefits of Trading on Fidelity
There are several benefits of opening an account and trading fractional shares at Fidelity:
- Offers over 7000 U.S. stocks and ETFs for fractional shares trading
- Direct indexing, via Fidelity Managed FidFolios, uses fractional shares with ownership of the actual stock rather than an ETF
- Committed to eliminating common account fees
- User-friendly account features and strong portfolio analysis
- Excellent order execution
- Dynamic Active Trader Pro platform
- Upgraded mobile experience
- Redesigned app dashboard
One of the key benefits to investing with Fidelity is that it offers over 7,000 U.S. stocks and ETFs for fractional share trading. Some brokers only offer a handful of stocks to choose from for this type of investing, so Fidelity gives you a larger chunk of the market to work with.
Fidelity has long been recognized as a leader in the industry for its low cost fees and delivering value to customers. Fidelity has continued to improve and offers new products to investors as markets have developed. Fidelity has introduced exposure to crypto and digital payments, in addition to stocks, bonds, ETFs, and fractional share trading. Fidelity does all this through a user-friendly desktop platform and mobile experience for investors, and effectively uses dashboards to make it easier for investors to keep up-to-date on their account and their progress towards financial goals.
Factors to Consider When Investing in Fractional Shares
Selection of stocks and ETFs available for fractional share investing: Fidelity has a wide selection of stock and ETF offerings for fractional share investing, making over 7,000 shares available for dollar cost averaging via fractional shares. One unique product that Fidelity offers is FidFolios, which enables investors to construct their own customized index of stocks and ETFs.
Fees and commissions: Getting started at Fidelity is made simple with $0 commissions for online US stock and ETF trades. There are also no account fees or minimums to open a retail brokerage account.
Account minimums: Investors at Fidelity can buy fractional shares for as low as $1 and there is no minimum to open a self-managed investment account. Investing in Fidelity Managed FidFolios does require a $5,000 minimum, though.
Research amenities: Once you open an account with Fidelity, you will have access to research amenities right from your account dashboard. Investors can access a plethora of research and news from the “News & Research” tab at the top of the dashboard, with a dropdown menu offering information on the latest news, watch lists, quotes, alerts, and much more.
Educational content: Knowing how to invest, what to invest in, and how to reach your financial goals are important, and the educational content provided by Fidelity can help you do just that. Investors can utilize the “Planning & Advice” tab on their dashboard to become a more informed investor. Investors can find articles and information for topics ranging from investing basics to long term care planning. Account users will also find it easy to access information regarding stocks, mutual funds, or ETFs in which they would like to invest, as well as other investment vehicles.
What Are Fractional Shares?
Investing in fractional shares helps you to easily diversify your portfolio and invest in companies that you may otherwise not be able to afford. Fractional shares—or “Stocks by the Slice,” as Fidelity calls them—allow investors to buy a fraction of a whole share of a stock. With this strategy, you are investing based on a dollar amount, not an individual stock’s price or certain number of shares. Buying fractional shares provides investors with a lower entry point of accessibility, thereby allowing investors to gain market entry sooner. It also allows you to employ dollar cost averaging across a basket of larger stocks that you would otherwise have to save up to slowly accumulate shares. The ability to dollar cost average into an ETF, for example, gives smaller investors the same advantages that large scale investors enjoy in terms of diversification.
What Is Fidelity?
Fidelity is the largest U.S. brokerage, was founded in 1943, and is headquartered in Boston. Currently, the company has 40 million individual investors, $10.3 trillion in assets under administration and $3.9 trillion in discretionary assets. Fidelity has been able to use its economies of scale to continue to offer competitive products and services while maintaining a low-fee structure for clients.
Although it is undoubtedly a large, traditional brokerage, Fidelity has been able to remain at the forefront of the industry by embracing technology and launching new products and services including digital investment management, crypto and digital payments, Active Trader Pro, and the Fidelity Metaverse.
Do Fractional Shares Make You Money?
As with any investment, fractional shares have the potential to both make and lose money, depending on the market performance of the asset you are investing in. Investing in fractional shares is a good way to dollar cost average your money into the market. If you are investing on a regular basis, you will be buying “slices” of several stocks over time. This will not only allow you to take advantage of dips in the market when buying, but over time, will enable you to build a portfolio that consists of full shares of multiple stocks. The key difference is that this portfolio will be diversified throughout the whole accumulation stage rather than only growing in diversification as your account balance grows.
Can You Buy Exchange-Traded Funds (ETFs) as Fractional Shares?
Yes, Fidelity offers ETFs as fractional shares. Fidelity offers investors over 7,000 choices of individual stocks and ETFS to buy as fractional shares.
Fidelity also offers FidFolios, which allows you to create your own customized index of stocks and ETFs. This specialized product does require a $5,000 minimum investment, though. However, you can start investing in fractional shares of individual stocks and ETFs for just $1.
Are Fractional Shares Harder to Sell?
Fidelity offers investors real-time trading during market hours. It is possible that fractional shares for certain securities may not be liquid and National Financial Services (NFS), which acts in a mixed capacity (as principal for the fractional share components and as agent for the whole share components) will not be able to guarantee a market for the security. Fractional shares are also not able to be transferred, so any fractional share would need to be sold prior to a transfer taking place. On the whole, however, fractional shares of larger, liquid stocks are just as easy to sell as their whole counterparts.
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