How to start investing as little as 1 dollar [sample]
How to start investing as little as 1 dollar [sample]
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Investing in the stock market doesn’t mean you need to have millions, thousands, or even hundreds of dollars to get started. Even if you have just one extra dollar, you can begin building your portfolio. Here’s how:
Fractional shares mean investors aren’t limited by their ability to afford entire shares. Instead, they can buy just a small slice of their favorite companies or funds (a mix of multiple stocks or other securities). This is now available directly through several financial services firms, including Robinhood.
So what’s a fractional share?
A fractional share is like a component of a spaceship…
If a share in a company or fund is like a spaceship, a fractional share is like one component of the machine. Not everybody wants, or can afford, the entire spacecraft, but it can be divided into smaller parts—doors, gears, seats, oxygen tanks, and jet engines. Just as an aerospace engineer prizes the integral role played by every nut and bolt, you, too, as an investor, can take ownership in something bigger.
There are many ways an investor can use fractional shares in their portfolio, even if that means only investing a handful of pocket change. Before we aim for the stratosphere, let’s do a quick check with mission control.
Fractional Shares Explained
A fractional share is a tiny increment of ownership in a company or an exchange-traded fund (aka an ETF). Rather than requiring investors to buy a full share (these are sometimes pretty expensive), fractional shares allow investors to purchase smaller portions. This levels the playing field, helping ensure that investors have access to the same opportunities at the same time.
It hasn’t always been this way. For a long time, individual investors who couldn’t afford full shares in their favorite companies or funds had to wait, saving until they could buy a full share, which could be hundreds or thousands of dollars. Meanwhile, share prices could rise, and those smaller investors could miss an opportunity to invest. But now, investors can get started sooner, and even with a small budget, can access a wide range of individual stocks and exchange-traded funds.
Nuts and Bolts: A Wide Range of Individual Stocks
When you buy fractional shares of an individual stock, you can proportionally experience the risks and rewards you would have if you’d bought an entire share. On Robinhood, you can trade fractional shares in real-time, meaning that trades placed during market hours are processed right away. Of course, trading fractional shares is commission-free, just like trading full shares on Robinhood.
There’s also a lot of flexibility in the size of shares you can purchase — They can be as small as one millionth (1/1,000,000) of a share. Even if a stock costs a few thousand dollars per share, you could own a portion of a share for $1. Not all investments are eligible for fractional share orders. But stocks that are worth more than $1 per share and have a market capitalization of more than $25 million are eligible for fractional shares on Robinhood. (If a stock isn’t supported, we’ll let you know when you’re placing an order.) On the Robinhood app, the purchasing process is customizable, meaning you can choose to trade stocks either in dollar amounts (e.g., $5 worth of shares in Spaceship Enterprises) or share amounts (e.g., 0.002 shares of Spaceship Enterprises), with an investment of as little as $1.
Fractional shares can sometimes appeal to investors who have income to invest, but are new to picking their own stocks. Some investors might prefer to start with a small amount of money, spreading it across multiple companies or funds as an entry point into developing their own trading style and portfolio balance.
Fractional Shares of ETFs
In addition to buying slices of individual shares, it’s also possible for investors to purchase fractional shares of exchange-traded funds (ETFs) on Robinhood. This can help offer investors a degree of diversification. (Keep in mind, diversification strategies do not ensure a profit and cannot protect against losses in a declining market.)
Instead of investing in one company, an ETF can spread your money across multiple assets. Depending on an investor’s individual investment strategy and needs, they might choose ETFs specific to a certain industry, such as clean energy or technology, or perhaps ETFs focused on a certain type of company (e.g., large-cap, mid-cap, small-cap, or growth stocks).
So, whether you’re new to investing or you just want to familiarize yourself with how certain ETFs have performed, fractional shares can be one way to test the waters at your own comfort level, depending on your individual risk tolerance and investment goals.
Do Fractional Shares Receive Dividends?
Yes. Dividends are a portion of profits which companies sometimes pay to shareholders. This often occurs on a quarterly basis, though some companies use different schedules or pay a dividend out of cash reserves. Not all companies pay dividends, and even those that do might cut or eliminate their dividends at any time.
When you purchase a fractional share of a dividend-paying stock, any dividend you receive is typically proportionate to the percentage of stock you own (rounded up to the nearest penny). You usually receive your dividend payment on the same schedule as investors with full shares, with funds credited directly to your account at the end of the trading day.
One of the potential benefits of owning dividend stocks is that they can add an income component to your investments to complement any possible capital gains. That said, stock investments always have the potential to fall in value; so just because a stock pays a dividend doesn’t mean it’s an investment that will generate positive net returns for your portfolio.
If I Own Fractional Shares, Can I Reinvest Any Dividends?
Yes. Some brokerages like Robinhood allow you to reinvest cash dividend payments back into the underlying stock or ETF. This is known as a Dividend Reinvestment Plan. (Remember, diversification and dividend reinvestment programs do not ensure a profit or protect against investment losses in a declining market.)
Even if you just have a single dollar or a fraction of a share to start with, dividend reinvestments may support compounding returns. Using automatic reinvestment can help make investing easier even for the most hands-on investor. Keep in mind that while fractional shares and dividend reinvestment help get the ball rolling, your results are directly affected by how your investments perform and the amount you’ve invested.
As you navigate your investment journey, fractional shares are one tool that can help you craft your desired portfolio. They might not be the “final frontier,” but they offer a vast array of possibilities for your investment “mission.”
Trading fractional shares and full shares on Robinhood is commission-free. There might be other, non-commission fees associated with your investments, such as Gold subscription fees, wire transfer fees, and paper statement fees, which may apply to your brokerage account. View Robinhood Financial’s fee schedule to learn more.
Fractional shares are illiquid outside of Robinhood and not transferable. For a complete explanation of conditions, restrictions, and limitations associated with fractional shares, see our Customer Agreement related to fractional shares.