With the prices of Tesla and Google shares being as high as they are, retail investors are generally unable to invest in these fantastic companies. However, Webull is following the trend of some other online brokers. They are offering the purchase of fractional or partial shares of stocks and ETFs for as little as $5!
What Are Fractional Shares?
A fractional share is when you purchase a portion of one whole share of a company. Fractional shares allow investors to purchase stock based on a selected dollar amount rather than the price of an entire share. This option is good because it enables investors to buy into a company when one full share of the stock is too expensive.
If you have been eyeing a pricey stock but want to invest with sound principles of diversification, you should not want to invest nearly all of your savings in a sole company.
Fractional shares can be bought through Webull and are an affordable way to invest. When working with limited capital and choosing a dollar amount for the investment, you can quickly diversify your portfolio with fractional shares.
What is Webull?
Webull is an online broker that lets you trade stocks, options, ETFs, cryptocurrencies, and more.
You can trade through Webull’s website, mobile app, or desktop app, but ultimately, Webull is best known for its stellar mobile interface. Simply, it looks polished and quite stunning.
Extended trading hours
A great and unique feature that you can find on Webull is its extended before- and after-hours trading. This includes full pre-market trading (4:00 am to 9:30 am Eastern) and after-hours trading (4:00 pm to 8:00 pm Eastern).
Why should I purchase fractional shares in Webull?
It all comes down to total capital. If you don’t have sufficient funds to invest in an entire share, you can choose to purchase a fractional share. Let’s give an example:
Say you are looking at Google (it’s called Alphabet now), and it is currently trading at $2,886:
You would typically need $2886.10 to add one share of Alphabet to your portfolio. And you would need nearly $5,775 to buy two shares.
If you don’t have $2886.10 (plus any fees) saved in cash to invest with, you are out of luck and need to find something else.
However, fractional shares are different. Webull allows you to choose the amount of money you want to invest. This investment can be as low as $5 and up, allowing you to build a diversified portfolio.
Many popular stocks have prices well over $500. To purchase just a few shares of several famous companies could cost from tens to potentially hundreds of thousands of dollars (yes, really).
Fractional shares allow you to allocate your investment capital as you wish. Say you have $4,500 to begin investing with. With fractional shares, you can now choose 15 different companies and invest $300 in each of your selected companies.
How do fractional shares help investors?
Economists have figured out a few ways to be more successful and lower your investing risk. If you aren’t a professional investor, you’re not likely able to watch your basket of stocks like a hawk. In this case, you’re better off using two strategies:
Fractional shares help you diversify
The first is diversification. This is where you will buy a minimum of 15 stocks of different-sized companies in different industries. This way, if a bad event negatively hurts one company, then the impact on others will be different. Your portfolio will only be marginally affected. However, on average, the stock market traditionally goes up in the long run.
Fractional shares make dollar-cost averaging easier
The second way is through dollar-cost averaging (DCA). Generally you are better off investing in a lump sum when you decide a stock is a good buy. But realistically, it is unlikely that you’ll be buying the exact amount of whole shares with your contribution. Most investors have a set amount that they want to invest in mind, and its usually a whole number.
With fractional shares, it’s no longer a problem. With DCA of fractional shares, you are able to invest the entire amount of cash you have on hand. This eliminates any leftover cash from sitting in the sidelines until your next paycheck comes in.
That cash is not working for you, and over time that can add up.
Imagine not being paid for 30 minutes each week. In a single week, that may not seem like much, but at the end of the year, that is 26 hours of pay you’ve missed out on.
Pros of Webull Fractional Shares: An Example In Action
Let’s say you normally contribute $100 a week. And let’s say the stock you want to buy is $60:
Scenario 1 (no fractional shares)
You can buy one share, and now you have $40 in cash. This cash is losing value to inflation.
The following week you now have another $100 plus $40 cash from last week. You buy two shares at $61 (the price went up) and end up with three total shares at a cost of $182. You’re now holding $19 in cash.
Your grand total of the shares plus cash is $201.
Scenario 2 (with fractional shares)
You buy $100 of the $60 stock. That’s a total of 1.66 shares.
The following week the stock price has gone up to $61, so you have 1.66 shares worth $101.66. You then buy another $100 in shares. You are holding $0 in cash.
Your grand total of the shares plus cash is $201.66.
This 66 cent difference might not sound like a lot in this example. Keep in mind this is just outlining some simple math to get you to understand how buying in fractional shares can get you ahead.
With a larger investing sum, plus compounding interest, and over many years, this can add up. Potentially thousands if not tens of thousands of dollars over a lifetime.
Cons of Webull Fractional Shares
There are a few situations that fractional shares can be an issue:
- Most brokers will not allow you to transfer fractional shares to a new broker. If you have whole shares, these are easily transferred, but fractional shares are not. You will have to keep them with the old broker or sell them and buy new assets with the cash from the sale. This can incur fees and taxable events.
- Fractional shares can cause you to lose a long-term investing focus. Because fractional shares provide new investors with market participation, these investors can fall into the trap of short-sighted investing. Don’t forget that wealth is created through compounding over many years.
These downsides are applicable to fractional shares from any brokerage, not just Webull.
Fractional shares now make Webull an even better option for new investors. Having fractional shares available for purchase means that small investors can buy into great companies that were once the domain of the wealthy.
If used correctly, fractional shares allow you to invest all of your capital, taking advantage of gains that would normally be eroded from the constant holding of cash.
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