Future of Investing
Cheatsheet: What you need to know about fractional investing
- Through the purchase of fractional shares, customers of modest means can invest in the stock market.
- Brokerages dealing in fractional shares say that while returns are important, financial education is a key objective.
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.