Is Investing Money In Stock Bits A Wealth Building Strategy?
Stock bits (aka “fractional shares) are extremely buzzy in the investing world right now. It’s a pretty simple investing product, where instead of needing to buy a whole share of a stock — which can often be very expensive — people can buy a partial share of a company based on the dollar amount they can spend. In other words, if you only have $5 you can buy a part of Amazon stock which is thousands of dollars with just that $5.
We’ll get into below exactly what that means in practical terms, the platforms that you can buy stock bits on, and the pros and cons of buying stock bits below to answer the question — is investing money in stock bits a good wealth-building strategy?
Table Of Contents
What Does Stock Bits Mean?
Purchasing stock bits means an investor gets a portion of a whole stock or ETF. Take Apple stock for instance. The current share price of Apple is a whopping $160 (as of November 19, 2021). But what if you only have $50 to invest in Apple stock? Or you want to allocate exactly $200 to Apple stock. That’s where stock bits come in because you can buy the dollar amount of Apple stock that you want to, without factoring in the share price. Many online brokerages offer the ability to buy stock bits with as little as $1 so you really can invest in stocks with the exact dollar amount that you want to.
How Do Stock Bits Help You Build Wealth?
Stock bits open up the ability for investors to allocate cash to their investments exactly as they want to. It also offers people an affordable option to get started in investing. We’ll get into the pros and cons specifically of stock bits below, but for people with limited capital, investing in partial shares creates the ability to create a diversified portfolio with exactly the assets they have. It also creates the ability to buy highly valued stocks — the Amazons, Teslas, and Facebooks of the world — with small amounts of money, making investing much more accessible to the average person.
How Do You Get Started With Stock Bits?
Stock bits have become a pretty common offering among online brokerages. That being said, not every online brokerage offers stock bits, including some of the big players like TD Ameritrade. If you are interested in buying stock bits it’s important to research online brokerages ahead of signing up to make sure they are offered.
It’s also important to do your research and to see what the online brokerage’s stock bits offerings are exactly. Not all platforms offer all stocks as stock bits. Another thing to keep in mind — that we will go into more detail later — is the fees associated with buying and trading stock bits.
What Are The Best Platforms To invest In Stock Bit?
Interested in investing by buying stock bits? Certain investing platforms stand out from the pack.
You can use this app to start investing in stock bits of stocks and funds with as little as $5. The app provides tons of stocks and funds to build your first financial portfolio. Access their educational resources to help you learn how to manage investments on your own.
If you open up a checking account with Stash, you’ll also get a debit card that earns you stock-back (stocks and funds) in companies like CVS, Starbucks, Amazon, Costco, Apple and more every time you use it to buy something at those locations.
Check out our in-depth Stash review.
Over 3,000 stocks and ETFs available for fractional share investing
Free investing report every month
Eligible for $10,000 of free life insurance through Avibra
Free retirement advice
Limited selection of stocks and ETFs
No mutual funds or bonds
Must call in and speak to the customer service department to withdraw
Robinhood’s goal is to make investing in financial markets more affordable, more intuitive, and more fun, no matter how much experience you have (or don’t have). It offers commission-free investing, plus the tools you need to put your money in motion.
Robinhood lets you buy stock bits of stocks. Here’s how it works: One share of Amazon currently costs $3,739 (as of November 19, 2021) which is unaffordable for most people. But apps like Robinhood let you purchase $50 of Amazon stock.
Check out our in-depth Robinhood review.
Can start investing in stock bits with as little as $1
Most stocks are available for fractional share orders (with very minor exceptions)
No account minimum
No retirement accounts
No mutual funds or bonds
Limited customer support
SoFi Invest offers $5 to $1,000 in free stock just for signing up. SoFi is great for beginner investors looking for simplicity. SoFi is also a great option for those with other SoFi accounts.
They have no minimum amount required to open an account, so get started, even if it’s only with $5. You might even be the lucky winner of $1,000 just for downloading the app (and we hope you invest that if you do.)
Check out our full SoFi review here.
Ability to buy stock bits with as little as $5
More than 4,000 stocks available as stock bits including Alphabet, Amazon, Tesla and Netflix
SoFi Invest charges no commission fees to buy and sell stock bits—so the money you invest is 100% invested
Commission-free stock and ETF trades
No account minimum
Free financial counseling
Small selection of tradable securities
Limited track record in the investing space
Lack of certain investment options such as mutual funds
Public is a commission-free stock trading app whose mission is to make investing accessible to everyone. The Public app offers stock bits so everyone can afford to own even just a tiny piece of any public company. The Public app provides several themes of stocks that makes it easy for inexperienced investors to explore and figure out what they want to invest in.
Public’s social aspect allows investors to learn from other investors, exchange strategy tactics and discover stocks by following experienced investors, industry experts, and even their friends. So get your buddies on board (and earn one bonus stock as a new user and up to 25 bonuses each year when you refer friends) and learn how to invest together.
Bonus: Use Public’s Fractional Share Calculator to understand what your return on investment can be.
Makes fractional share investing fee-free and available for many companies and ETFs
No minimum investment
2.5% interest rate on your uninvested cash
Zero fees or commissions to buy or sell stocks
Does not currently support mutual funds or bonds
Only offers stocks and ETFs from major exchanges
No web-based account management
M1 Special promotion for Fall 2021: Deposit $1,000 get $30 free! See more details.
M1’s low-cost investing platform lets you set up your ideal portfolio. Any stock currently listed on M1 Finance platform is available to buy as a fractional share. They then automate contributions to the portfolio (recurring investments). Once your default is set, you don’t have to think about it again, it can be completely hands-off.
Stocks and ETFs trade commission-free, and you’ll pay nothing for AUM (assets under management is the total market value of the investments that a person or entity handles on behalf of investors) with a standard account.
M1 Finance does more than automate investing, it also automates efficient rebalancing which is basically the “buy low, sell high” concept performed in an automatic fashion.
Ability to buy anything available on the platform as a fractional share
No trading fees or asset management fees
Flexible portfolio building in addition to Expert Portfolios
Small, inactive accounts are charged fees
No financial advisors
Minimum investment of $100 required
Beginner investors will appreciate the company’s $0 account minimum, and the $0 commission for stock. Then there’s the convenient intelligent assistant that recognizes voice commands so you can get your financial business sorted more quickly and efficiently. Beginner investors also benefit from the wide selection of inexpensive and low-minimum mutual funds and index funds.
Buy any stock listed on the S&P 500 as a fractional share
Start buying stock bits with as little as $5
Large fund selection
Commission-free stock, options and ETF trades, including stock bits
Low default cash sweep rate
High fees for some mutual funds
No ability to buy and trade crypto
Fidelity is a stalwart in the investing space — and one of the most trusted names out there. It is one of the best platforms to transition from being a beginner to a more advanced investor thanks to $0 trading commissions, a selection of more than 3,700 no-transaction-fee mutual funds and top-notch research tools and trading platform. On top of all of that, it makes stock bits available to its investors and is known for having stellar customer service.
Commission-free stock, ETF and options trades
Access more than 7,000 US stocks and ETFs as stock bits
Trade stock bits for as little as $1 with no dollar maximum per order
Large selection of research providers
Strong customer service
No expense index funds offerings
Award-winning mobile app
Relatively high broker-assisted trade fee
Pros And Cons Of Stock Bits Investing
In this section, we are going to go into the specifics of stock bits, and the pros and cons of investing while utilizing them.
Pros Of Stock Bits Investing
1. You Can Start Investing With Whatever Amount Of Cash You Have
Not everyone has thousands of dollars at their disposal to buy a single share of Amazon stock. Not everyone has $50 at their disposal to buy a share of a much cheaper stock either. stock bits offer the ability to start investing with whatever capital you have on hand, with exactly the amount you are prepared to spend.
2. Buy The Stocks You Want With Whatever Amount Of Capital You Have
It’s not just being able to invest with whatever capital you have, it’s the ability to buy exactly what you want to buy with that capital. Take Tesla stock for example which costs $1,098 a share (as of November 18, 2021) or Amazon.com stock which costs $3,679 (as of November 18, 2021). Without stock bits, investors with smaller amounts of capital would have to look elsewhere as an investor. With partial shares, investors can buy exactly the stocks they want — Amazon, Tesla, or whatever else.
3. Everyone Can Take Advantage Of Dollar-Cost Averaging
Dollar-cost-averaging is a very effective investment strategy in which an investor periodically invests at regular intervals across his or her assets evenly. The purchases occur regardless of the asset’s price and work to reduce the impact of volatility on the overall purchase.
Dollar-cost averaging with stock bits enables you to invest the entire amount of money you deposit into your investment account on a weekly or monthly basis. None of it ends up sitting in cash, and it all starts working for you immediately.
For example, without utilizing stock bits if you contribute $200 per month and the index fund you want to invest in is currently trading at $240, you will only be able to purchase one whole share. You’d be leaving $40 of uninvested cash in your brokerage account if you didn’t have the option to buy stock bits.
Things get even more complicated when your portfolio is bigger than just one ETF, but buying a small part of a stock allow you to take advantage of dollar-cost averaging to its fullest, and put all of your money to work for you immediately.
4. Build Exactly The Diversified Portfolio You Want
Diversifying your investment portfolio is extremely important, but it can be tricky, especially when you are dealing with smaller amounts of money. Say you have $1,000 and have your sights set on investing in ten different stocks. Because of stock bits, you would be able to diversify your portfolio with those exact 10 stocks that you are interested in. Without this option, you would have to pick and choose based on your budget.
5. Gain The Ability To Invest Precise Amounts In A Company
With stock bits, you don’t have to choose the amount to invest based on whether the amount is divisible by the share price. You can simply decide how much to invest and buy as much of a stake in the company as you want to. If you have $100 and want to buy exactly $100 of Amazon stock, you can.
Cons Of Stock Bits Investing
1. It Can Be Easy To Rack Up Fees If You Aren’t Careful
While lots of online brokerages offer fee-free trading for stock bits, it’s important to read the fine print so you know what you are getting into ahead of time. The other thing to be aware of is larger fees from the online brokerages, like monthly fees, which can take a big bite out of investment accounts, especially accounts with smaller balances. Users who are investing small amounts — usually buying stock bits — can run into this, sometimes unknowingly.
2. Different Brokers Have Different Rules And Offerings When It Comes To Fractional Share Investing
For the most part, beginner investors when they are deciding on an online brokerage are looking at the user interface, educational resources, and customer service to make their decision. Investors interested in stock bits need to take things a step further.
Not all online brokerages offer the same stocks via stock bits, for one. Another thing to be aware of is brokers have different rules regarding the minimum portion of a share you need to purchase. Do your research, and make sure your choice of an online brokerage lines up with your needs.
3. Not Every Brokerage Allows Customers To Buy Or Hold Stock Bits
Not every brokerage allows customers to buy and hold stock bits, it’s that simple. One example to point out that doesn’t is TD Ameritrade. Buying stock bits might require you to change your online brokerage if you are already investing.
4. Dividends Can Become An Issue With Stock Bits
If you own a very small fraction of a share of a dividend stock your broker may keep your dividend. For example: In cases when your fraction of a stock entitles you to less than one cent in dividends (0.7¢ for example), you may not receive any dividend, even if the dividend is a meaningful portion of the stock’s value. For the most part, this only happens to investors with small amounts of a dividend stock, but it’s something to keep in mind.
Fractional share investing offers a real advantage to investors — particularly beginner investors who aren’t starting with a lot of capital. It means gaining the ability to invest exactly the amount you want, in exactly the stock or ETF you want. It means being able to diversify your portfolio exactly as you want to. It’s also the easiest way for beginner investors to take advantage of dollar-cost averaging — a highly effective strategy — as they build their way to wealth.
There are cons to buying stock bits — most of which involve making sure to read the fine print. There can be fees associated and different rules as far as buying and trading stock bits, and not all brokerages offer all stocks and ETFs as stock bits.
FAQs About Stock Bits
What Online Brokers Offer Stock Bits?
Many online brokers offer stock bits. Particularly the new players in the online brokerage space like Stash and Robinhood are known for their fractional share offerings, although stalwarts in the investing space like Charles Schwab and Fidelity also offer stock bits. See above for our top picks for online brokers that offer stock bits.
Do Stock Bits Pay Dividends?
Yes, you can buy stock bits of dividend stocks, but the amount you receive in dividends will be proportional to how much of the share you own. So, if you invest $10 in a $100-per-share stock with a dividend of $1, your dividend will be only 10 cents. Keep in mind, if you own a very small amount of a stock as a fractional share, your broker might decide to keep your dividend entirely. Read the fine print.
What If I Buy Stock Bits And Later There’s A Stock Split?
If a stock experiences a stock split, for the most part, you’ll receive the cash equivalent of any fractional (non-whole) share amounts resulting from the split instead of shares. For example, if a stock split results in 2.1 shares worth $10 per share, you’ll receive 2 shares and $1 (the cash equivalent of 0.1 shares).
Keep in mind, some brokerages only split full shares, and will sell your stock bits and put the entire amount back into your account.
Can I Buy Exchange Traded Funds [ETFs] As Stock Bits?
Yes, ETFs are available as stock bits through many online brokers. If you are interested in a specific ETF make sure to research if it is available as a fractional share before you sign up for a particular online brokerage.
Are Fractional Share Rules The Same Across All Brokers?
The short answer is no: stock bits may be handled differently depending on the broker. Make sure you check the fine print.
Can I Short Stock Bits?
This is another one where it’s going to be different depending on the online brokerage you are with. International Brokers (IBKR) is an example of an online broker that does support short sales of stock bits as long as you have margin and approved trading permissions.
What Are The Fees Associated With Stock Bits?
Some online brokers charge a fee to trade stock bits — anywhere from $1 to $5 — but some do not. Other online brokers charge monthly fees that can turn out to be a high percentage of someone’s account balance if they are holding small amounts of stock bits.
Are Stock Bits Worth It?
$1,000 worth of Amazon stock is better than $1,000 worth of some company selling at $40 a share if Amazon outperforms the other company. It’s as simple as that. Percentages are all that matters and stock bits allow investors to buy exactly the stocks they want to. One example where they might not be worth it is buying a very small amount of stock via an online brokerage thanks to stock bits, where the fees associated with the account might outweigh the investment. For example, buying $5 of Amazon stock, but paying a $10 monthly fee to the online broker. That would be a bad move.
Can You Limit Order Stock Bits?
This is another question that depends on the platform. Some offer the ability to do this while others do not. Do your research.
What Are The Best Stocks To Buy Stock Bits In?
While we can’t give direct stock investing advice, check out our article about how to know what stocks to buy.