It is critical to start investing if you want to achieve true financial independence — and the stock market is the best place to do just that. But many new investors are hesitant to jump in or feel limited by the high price of some of the world’s most popular stocks.
Fortunately, it’s still possible to own blue-chip stocks without wiping out your entire bank account thanks to Schwab Stock Slices™. Keep reading to learn why fractional shares are useful, and how to trade fractional shares through Charles Schwab — one of the world’s largest financial institutions.
Buying Fractional Shares with Charles Schwab
Schwab is a full-service brokerage firm that offers investing, banking, and financial advisory services.
The company lets you sign up for both taxable brokerage accounts and individual retirement accounts. In addition, it’s known for having a high-quality trading platform and mobile app, with advanced data visualization tools, real-time updates, and experienced financial advisors.
Schwab provides commission-free trading for stocks and ETFs, as well as $0 options and mutual funds. Further, the company has no trade minimums or account minimums.
Schwab is currently in the process of merging with TD Ameritrade, which is expected to finalize during 2023. In the meantime, Schwab and TD Ameritrade will operate as two separate broker-dealers.
Schwab Stock Slices
Like many brokers today, Schwab now supports fractional investing for as little as $5 through the Schwab Stock Slices™ tool.
Schwab Stock Slices™ is a free service that comes with any Schwab account. It’s immediately accessible in Schwab’s dashboard alongside the company’s other features.
What are Fractional Shares?
Here’s a quick primer on fractional shares if you’re new to the topic.
The traditional approach to investing involves buying full shares of publicly traded companies. For example, you might buy a share of Coca-Cola. That strategy works if you have enough cash sitting around. But after paying all your bills, you might only have $5 or $10 left to invest at the end of the month.
Fractional investing lets you purchase small fractions or “slices” of a stock. For many new investors, it provides an easier way to build a legit stock portfolio little by little.
Pros & Cons of Fractional Shares
- Put every dollar to work: There’s almost always some money sitting around in your checking account. By investing a little at a time as regularly as possible, you’re going to fast-track your ability to retire. It’s that simple.
- Work your way up to a full share: When you steadily invest in fractional shares, you can eventually work up to full shares by reinvesting your dividends. By taking this approach, it’s possible to get a full share without forking over hundreds or thousands of dollars at a time. Of course, you just need to make sure the companies you invest in pay dividends.
- Achieve diversification: Investing in fractional shares can make your portfolio more diverse. For example, if you want to spread $150 across several technology companies and two exchange-traded funds (ETFs), you can do that. Without the fractional approach, that $150 would most likely only go toward one or two standalone stocks.
- Limited availability: Not all brokers offer fractional shares. This is something to check early on when determining which broker to use, so you don’t have to switch to another platform for fractional trading. For example, E*TRADE does not currently offer fractional share investing.
- You could lose money: Fractional share investing is still just as risky as any other type of stock investing. Remember that the ability to buy high-price stock slices on the cheap doesn’t guarantee your investment will increase in value. Furthermore, just because a stock has a high price doesn’t indicate that it will be successful down the road.
With that said, I still think that the pros of investing in the market far outweigh the cons. Next, let’s take a closer look at how to get some fractional shares using Schwab.
How to Invest with Schwab Stock Slices™
Investing in fractional shares through Stock Slices is as “easy as pie”. Use the following step-by-step guide to get started.
1. Open an account with Schwab
Head over to Schwab.com and open a standard brokerage account or retirement fund for longer-term investing.
You can easily view all your accounts from a single dashboard without going through multiple logins. This means you can view your combined individual and retirement accounts on the main screen.
2. Link a bank account
Once you’re in, you’ll need to link your bank account to transfer money and start investing. You need to wait until your funds land in Schwab before you can invest, which usually takes a few business days.
In the meantime, you can browse Schwab’s full menu of research tools. Pick out a few stocks ahead of time so you can hit the ground running once your money clears.
3. Select Schwab Stock Slices™
When your funds are available, navigate to the top of the screen and select “trade.” The option for Schwab Stock Slices™ should appear on the drop-down menu on the left side of the screen.
4. Browse fractional stocks
At the time of writing, Schwab Stock Slices™ grants access to 502 different stock fractions, including all companies in the S&P 500 index.
As a reminder, the S&P 500 index contains the world’s top large-cap publicly traded organizations. Schwab updates the available options for fractional shares as the S&P 500 composition changes.
You can easily search for a company by name or browse companies across different sectors like communications services, consumer discretionary services, and information technology, among others.
Schwab lets you select between one and 30 fractional shares at a time.
5. Make your investments
Once you find a company (or group of companies) that you want to invest in, make your selections by checking the white box to the left of the stock symbol. When you’re ready to make a purchase, click “Continue” at the bottom of the screen.
This brings you to another screen that asks you to enter additional details. Select the account you want from the drop-down menu to see how much you have available to trade. For example, you might have $800 sitting in an IRA.
Next, include the amount you want to invest. At this step, you’ll also need to decide whether you want to reinvest your dividends or not. In case you’re wondering, I generally recommend reinvesting dividends because it automatically increases the number of shares you own over time. However, you can always change this later on down the line if you want to.
When you’re comfortable with your picks, click “review selection,” read through the terms and conditions, and confirm the order.
As you can see, the process is straightforward. The only real difference between traditional investing and fractional shares on Schwab is that you use Schwab Stock Slices™.
Once you purchase stocks, you can hold and sell them independently just like any other stock in your portfolio.
Schwab Slices dividend policy
Schwab lets you collect a pro-rata share of dividends, even if you own less than one whole share of stock. There’s just one catch: The dividend must be greater than or equal to one-half of one cent.
Further, you can also participate in mandatory corporate actions like stock splits, spin-offs, and mergers. To participate in a shareholder vote, you have to own at least a single share of stock.
Alternative Fractional Investing Platforms
Schwab is far from the only online brokerage offering fractional shares. Here are a few popular alternatives to explore.
Fidelity is a Schwab competitor that offers fractional shares through its program called Stocks by the Slice. This program allows you to buy U.S. stocks and ETFs without paying any commissions or account fees, or maintaining minimum balance requirements.
Currently, Fidelity offers fractional trading for 7,000 U.S. stocks and ETFs.
Robinhood is a popular broker that lets you trade fractional shares over a mobile app and gives you one free share of stock if you open an account. You can also get up to three free shares of stock with Robinhood by referring your friends. Not bad!
M1 Finance is a leading broker that provides fractional shares and doesn’t charge any management or trading fees. The company also offers personal loans, a savings account, custodial accounts, and more.
SoFi is a leading personal finance provider that provides brokerage services, student loan refinancing, and mortgage loans, among other things. SoFi lets you purchase fractional shares for as little as $5.
Frequently Asked Questions
Does E*TRADE offer fractional investing?
E*TRADE does not currently support fractional investing. However, the company allows you to reinvest your dividends as fractional shares.
Can you transfer fractional shares to Schwab?
Fractional shares are non-transferable with Schwab. If you transfer shares to Schwab, the company will liquidate all fractional shares.
What brokerages allow fractional shares?
Fidelity, Robinhood, M1 Finance, and SoFi are popular brokers that come with fractional share investing. I highly recommend figuring out which platform works best for you before completing a transaction.
Can I buy fractional shares of ETFs?
Most brokers allow you to buy fractional shares of ETFs. However, Schwab only allows you to buy slices of S&P 500 stocks. Make sure your broker supports fractional trading for ETFs before you sign up if you plan on buying them.
The Bottom Line
To recap, this strategy involves buying partial shares of individual stocks from companies like Berkshire Hathaway, Amazon, Alphabet, and Tesla. By purchasing a fraction of a share at a time, you can slowly increase your ownership stake in a company. It’s also a way to tap into a high-growth fund if the full stock price is out of your reach.
When it comes to accessing fractional shares of S&P 500 stocks, Schwab is hard to beat. The company charges minimal fees and offers a powerful trading service with advanced data processing and visualization tools.
However, having access to the best advisors and platforms doesn’t mean much if you aren’t dedicated to the cause and investing as much money as you can each month.
Trust me, by making some simple financial sacrifices today, you’ll be in a much better position down the road.