Cheatsheet: What you need to know about fractional investing

While traditional brokerages have account minimums that put investing in the stock market out of reach for many young people, the ability to invest in fractional shares is opening up the market to a new set of investors. The ability to invest in a portion of a share may just move the needle for an industry keen on reaching millennials beset with student debt and other expenses. It can also serve as a financial education vehicle, letting people learn about how the market works without risking large sums of money. Here, we break down fractional investing and what it means for the industry. What is fractional investing? Fractional investments let customers invest by dollar value rather than through whole shares. Although the ability to invest in fractional shares has been possible for quite some time, possibilities to use technology to carry out trades faster has only been available in the last five to 10 years, said Dan Schatt, chief commercial officer at investment platform Stockpile. Through fractional investing, a customer who can't afford a whole share, which could cost in the hundreds or thousands of dollars, can buy a fraction of a share. That not only opens up the stock market to a bigger range of customers, but allows for portfolio diversification for customers that don't have a lot of capital to invest. "Previously, the customer had to buy whole shares -- they may not be well diversified, and it could become incredibly expensive for them to do it," said Brandon Krieg, CEO and co-founder of micro-investing platform Stash Invest. The numbers

• According to a Bankrate survey last year, only a third of millennials said they invested either through buying stocks or through mutual funds or a retirement account.
• 46 percent of respondents said if they weren't able to invest, it was because they didn't have the money
• According to the 2016 Fidelity Investments Money Study, only 9 percent of millennials polled described themselves as investors, while 46 percent described themselves as savers, despite the fact that 63 percent said they had an investment account.

How it works A tech company, which acts as the broker, facilitates the transaction on the market on behalf of the buyer. "From the customer's perspective, there's no difference between fractional shares and the full share, it's just where the decimal point falls," said Schatt. The only two things that fractional share owners can't do is attend the shareholder meetings and vote. Customers can use mobile apps to buy and sell fractional shares by connecting their bank accounts, removing layers of friction once required by legacy players -- particularly when buying stocks for others: "If you were going to buy stock for an individual, for example, you would have to open up a brokerage account for the individual, for yourself, then wire money to buy the stock and transfer it to the recipient," said Schatt. "It was a nightmare." Some brokers charge monthly membership fees, while others charge a fee per transaction. The players Founded in 2015, Stash Invest lets customers buy fractional shares with a minimum investment of $5. It charges customers $1 a month for accounts under $5,000, a 0.25 percent fee per year. Stockpile, founded in 2010, has a $1 minimum for fractional share investments. While it doesn't charge customers a monthly fee, transactions cost $0.99. Investr, a new player that just launched fractional share investment products last week, also has a $1 minimum and charges $0.99 per fractional share transaction. Companies that play in the space say that beyond the investment returns, an added benefit is financial literacy. Fractional shares have also offered possibilities for the sale of fractional share gift cards in big-box retail stores. One app, Stockpile, works with with major retailers and companies to allow individuals to easily buy fractional shares on behalf of others. The fintech view "It's one thing to get on the investing ladder early, but it's also important from an education and learning standpoint to get a view of how markets move. Financial markets are about people and human events, and how we react to them." -- Kerim Derhalli, CEO of Investr, which also lets users test their ability to invest without real money through games. "If you boil down what we're doing to one word, I would say it's about access." -- Dan Schatt, chief commercial officer, Stockpile.