The myth
Fractional investing has been gaining popularity in recent years as a way to invest on a modest budget, especially in global stocks.
It involves buying fractional shares, which are portions of 1 whole share of a company.
These shares can allow you to buy stocks even if you only have a small amount of money to invest.
Instead of purchasing an entire share or a board lot, you can buy a fractional share—allowing you to invest based on your budget rather than the stock's full price.
The reality
For Filipinos, fractional investing is currently only available for select global stocks via foreign brokerage services.
This can be a game changer if you’ve had your eye on the stocks of big companies but your investing budget is limited.
That’s because stocks of major companies, like US tech firms, can go for hundreds of dollars per share. Through fractional investing, you may be able to afford stocks that are otherwise too expensive for you to buy.
Some services may allow you to put in as little as $1 in fractional shares. However, there are costs to consider before doing fractional investing.
To begin, you’ll likely need a dollar account to make transactions. Currency exchange may affect the value of your investing capital, potential earnings, and any fees you may need to pay.
Speaking of fees, you’ll have to consider the costs of buying and selling fractional shares. There may be fees for transferring money to your dollar account and funding your brokerage account.
Brokers may also impose charges for transactions, commissions, withdrawals, and inactivity. The impact of these costs on your potential returns can vary depending on how often you’ll transact.
If you’re an active investor and would buy and sell shares frequently, you may need to pay fees with each transaction.
This might be less of a concern if you’re a passive investor and plan to hold onto investments for a long time, and won’t need to transact as often.
You should check how these fees might affect you and whether they’ll eat into your returns.
Verdict: Mostly true.
Fractional investing lowers the minimum amount needed to start investing in global stocks. Though the cost of starting out is relatively low, there may be fees that could add up over time especially if you'll transact frequently.
When considering this option, calculate the associated costs to know if it’s truly a practical choice. Keep in mind that an investment’s price shouldn’t be the sole basis of your investing decisions.
Factors like your risk tolerance, goals, and diversification needs should also guide what you’ll do next.
