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- If you don’t want to pay for a stock’s full price, you may be able to buy fractional shares.
- Charles Schwab’s equivalent, called Schwab Stock Slices, lets you get started with as little as $5.
- You’ll only need $1 to purchase fractional shares through Fidelity’s Stocks by the Slice.
When it comes to DIY investing, there are generally two ways to gain exposure to stocks: fractional shares and whole shares. Many brokerages offer the fractional share option, allowing you to opt out of paying the full share price for investments like stocks and ETFs.
Brokerages like Charles Schwab and Fidelity have long offered this option, but they recently began advertising them as “stock slices” and “stocks by the slice.” Here’s a closer look at how Schwab and Fidelity’s fractional shares work and whether they’re right for you.
How do stock slices work?
Stock slices allow you to purchase portions of full shares of stocks and ETFs. In other words, instead of entering a share number on your platform’s order page, you’ll be entering a dollar amount that is less than the price of a whole share. Fractional shares also pay dividends, depending on the company or fund you’re investing in.
“Buying fractional shares can help an investor diversify a smaller size portfolio by being able to incorporate these investments that would otherwise not be an option for them,” Cassandra Kirby, Partner, COO, CCO, and Private Wealth Advisor at Braun-Bostich & Associates , told Insider. Historically, she added, investors could only buy full shares in a particular company, but the ability to buy fractional shares allows you to buy a certain dollar amount.
Countless online investment platforms offer this trading option (usually with a minimum requirement of no more than $5, although some platforms only require $1). And the order process is fairly simple.
Once you’ve decided which investment you’d like to buy, you’ll need to navigate to your platform’s order page. There, you’ll enter the company’s ticker symbol. The page will display an “action” button which lets you choose whether you want to buy or sell. In this situation, you’ll be buying. You’ll then need to enter a dollar amount to purchase a stock slice of the investment you’ve chosen.
Not every company or fund offers fractional shares, so you’ll only see the option to purchase a number of shares if that applies to the investment you’re eyeing. But if it allows this trading feature, you’ll simply need to confirm the order after you’ve entered the dollar amount, and you’ll be all set.
What are the Schwab Stock Slices™ ?
Online brokerage Charles Schwab’s Stock Slices are basically fractional shares; it’s just that the company recently started advertising them as Stock Slices. The brokerage lets you buy slices in up to 30 US companies, and it lets you sell them independently.
Plus, you can invest in slices of companies in the S&P 500, according to its website. There isn’t a limit on the number of fractional shares you can buy, but you can’t invest more than $50,000 per transaction. You won’t have to worry about fees when trading its slices, but there is a minimum of $5 to get started.
What are Fidelity’s Stocks by the Slice℠ ?
Like Schwab, Fidelity also allows for fractional share investing. Its Stocks by the Slice℠ account option lets you purchase partial portions of stocks, and you’ll only need $1 to get started. Unlike Schwab, there’s no dollar maximum per transaction, and you can buy slices of ETFs.
Fidelity currently offers this account option for more than 7,000 stocks and ETFs, and you can use market and limit orders when buying shares. In addition, its brokerage accounts, IRAs, Fidelity Youth Account, and BrokerageLink® accounts are eligible for Stocks by the Slice.
How do Fidelity and Schwab’s stock slice offerings compare?
While Charles Schwab has a $5 minimum requirement for its stock slices, Fidelity only requires $1. Schwab also only offers stock slice investing for stocks, but Fidelity supports both stocks and ETFs.
In addition, you’ll get access to more than 7,000 stocks and ETFs at Fidelity. And since Schwab only allows for stock slice investing in the companies that make up the S&P 500 index, you’ll be limited to 500 stocks. Both current users and prospective investors should also note that Fidelity has no dollar maximum per order. Schwab limits transaction amounts to $50,000.
Who should use stock slices?
“The use of fractional shares may best suit an investor with a smaller dollar amount to invest who wishes to diversify their portfolio,” said Kirby.
As mentioned earlier, most brokerages that offer them have low minimum requirements and allow you to enter your desired dollar amount when purchasing the investment. Plus, you can also earn dividends and participate in actions like stock splits and reverse stock splits, according to the SEC. But there are some drawbacks to consider.
For one, fractional share investing affects your shareholder rights when it comes to corporate matters. If you don’t own full shares, you might not be able to participate in proxy voting, depending on your brokerage. Both Schwab and Fidelity do not allow proxy voting for fractional shares.
You might also be limited when it comes to liquidity (this represents how easily you can sell an investment and convert it to cash) and stock transfers. Brokerages — including Charles Schwab and Fidelity — usually don’t allow you to transfer stock slices to another firm, unless you liquidate them first. You can generally only transfer whole shares.
“I would not say that fractional shares are better or worse than buying full shares,” Kirby added. “Rather, they’re a way to provide investors with a greater range of investments from which to choose.”
Both the Schwab Stock Slices™and Fidelity Stocks by the Slice℠ trading features let you purchase fractional shares with low minimum requirements, while offering perks like dividends and access to top-performing investments.
But while stock slices are a great idea for those looking to avoid the costs of full shares, they limit your corporate voting rights and transfer and liquidity capabilities. It’s important to keep this in mind on your wealth-building journey.