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How to Buy Fractional Shares on Fidelity?

How to Buy Fractional Shares on Fidelity?

Interested in buying fractional shares but don’t know where to start? This guide will help you streamline the investment process. 

Nowadays, there are a number of online brokerages that offer fractional shares to its users. Among them, Fidelity stands out as the best platform for selling and buying fractional shares. In January 2020, Fidelity Investments rolled out real-time fractional shares trading for stocks and even ETFs for its retail customers. 

But the question still remains- How can you buy fractional shares on Fidelity? Be patient, we will get there. Before diving into the process of buying fractional shares on Fidelity, we must first understand what are fractional shares and how can they be beneficial for you as a retail investor. 

In simple terms, fractional shares are portions(or fractions) of a company stock. These shares allow you to buy stocks based on a dollar amount instead of the number of shares. Investing in fractional shares also opens up opportunities to purchase portions of pricey stocks with the limited money you have on hand. 

In this blog, we will highlight how to buy fractional shares on Fidelity and also evaluate the pros and cons of investing in fractional shares. Let’s dive in. 

What are Fractional Shares?

As the name suggests, fractional shares are portions(or fractions) of stocks and ETFs that are smaller than the whole stock. You can buy fractional shares based on the dollar amount, instead of the usual number of shares. There are a number of reasons to invest in fractional shares- you might have limited money and can’t buy the entire stock or you might want to invest a set amount in a stock or ETF every month. 

Fractional shares are a relatively new entry in the world of investing. Before 2020, it was impossible to buy a portion or anything less than a whole share of stocks and ETFs. Fractional shares were available in mutual fund investing, however, until recently you could only buy fractional shares in a a few ways- 

Stock Splits or Reverse Stock Splits: When a company splits its stocks, it increases its share count by providing shareholders with additional shares of stocks. For example- in a 3:2 split, you receive three additional shares for every two shares that you own. If you owned 15 shares, you would have 22 ½ shares. The ½ share represents the fractional stock. On the contrary, in a 3:2 reverse stock split, you get two shares for every three shares that you own. 

Dividend Reinvestment Plan(DRIP): With a DRIP plan, the dividends paid by a company are automatically reinvested to buy new shares. Investors can end up with fractional shares with this method. For example- if you owned 200 shares of a company and the annual dividend was $0.30 per share. You would be entitled to $60 worth of dividends. If a stock is priced at, let’s say $40, the dividends would automatically buy one and a half shares, meaning you end up owning 201½ shares of stocks. 

Mergers and Acquisitions: In the case of mergers and acquisitions, the stocks of the companies may be exchanged for new shares. They use a ratio to combine stocks from different companies, meaning five shares of Company A may become two shares of Company B. You can end up with fractional stocks with this process. 

How to Buy Fractional Shares on Fidelity? Step-by-Step Guide

Does Fidelity offer Fractional Shares? Yes, and buying Fractional shares at fidelity is very simple. Moreover, the platform also offers various types of accounts which makes it easy to start investing in fractional shares with low fees and minimum investment requirements. 

Step-1: Open an Account on Fidelity

Opening a trading account on Fidelity is a cakewalk. All you need is to provide your basic personal information like e-mail, phone number, etc. and choose the type of account you want to open. 

Step- 2 Login to Your Fidelity Account

After you have registered and opened a trading account on Fidelity, you will need to log in and fund your account. Fractional shares trading takes place in real-time so the funds should be available in your account to start trading. 

Step-3 Click on the “Trade” Button

You can find the “Trade” button on the top left of your Fidelity dashboard. Once you click on it, a dropdown menu will appear with a form you must fill out regarding what type of trade you would like to make. 

Step-4 Change From “Shares” to “Dollars”

In order to buy fractional shares on Fidelity, you will need to change the “shares” settings to “Dollars.” This will let you place your order based on a specific amount instead of the usual number of shares. Dollar amounts can be inputted up to two decimal points(like $75.50). The order is then converted into shares up to three decimal points, and rounded down to the nearest decimal. 

Step-5 Complete Your Order

Fractional share orders are only good for the following day as they are entered as market orders or limit orders. After choosing the fractional stocks, click on ‘Preview order” and you will be redirected to a confirmation screen that lets you place your order. Before confirming the order, you can also edit or cancel the trading order from this screen. Fractional share trading is conducted in real time so you will always know your share price. 

Documentation Required to Open a Fidelity Brokerage Account

As mentioned above, you will be required to provide your basic personal and financial information to open a trading account on Fidelity. Depending on your financial goals and investment strategies, you can also choose the type of account you want to open. 

These are the following retail accounts that are approved for buying fractional shares on Fidelity- 

Required Personal Information

During the process of opening a Fidelity trading account, you will be required to provide your personal contact information, including- 

  • Full name
  • Address
  • Social Security number 
  • Date of birth
  • Phone number
  • Email address

Required Financial Information

Besides personal and contact information, you will also be required to provide your financial information to open an account on Fidelity. This includes documents regarding your current financial situation along with your investing goals. 

Fidelity also provides a questionnaire to know their customers and ensure they are matched to suitable investments according to their financial situation and risk tolerance. 

You can also link your bank account or use mobile deposits to transfer funds to your Fidelity account instantly. Besides that, sending a cheque in the mail is also an option. 

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Factors to Consider When Investing in Fractional Shares

While fractional shares are a viable form of investing if you are trying to control your investments or don’t have enough money to buy a whole stock, there are certain factors that should be considered before starting your investment journey. 

Selection of stocks and ETFs

It is crucial to consider the range of stocks and ETFs available on the platform before diving into fractional shares. When it comes to Fidelity, it offers a wide range of stocks and ETFs for fractional share investing. More than 7,000 shares are available for dollar cost averaging. Moreover, the Fidelity platform also offers an amazing feature called FidFolios, which allows investors to create their own customized ETFs and indexes of stocks. 

Fees and Commissions

When getting started with fractional investing, it is important to understand and know the fees and commissions associated with trading fractional shares. Fidelity charges $0 in fees or commissions for online US stocks and ETFs. Moreover, users don’t have to pay a single penny to open a retail brokerage account. 

Account Minimums

Another important factor to consider is account minimum requirements. On Fidelity, investors can buy fractional shares for $1 and there are no minimum requirements to open a brokerage account. However, using and investing in Fidelity Managed FidFolios requires a minimum investment of $5,000. 

Research Amenities

One of the best things about Fidelity is that it provides access to News and research right on your account dashboard. It is an interesting and useful feature that investors can use to access a wide range of research and current news regarding fractional trading and investments in general. Just click on the “News & Research” tab at the top left of the dashboard and you will see a dropdown menu with information on the latest alerts, quotes, news, and much more. 

Educational Content

It is essential to understand what to invest in, how to invest, and how much to invest to achieve your financial goals. The educational content provided by Fidelity can help investors get reliable information and understand their investments. The “Planning & Advice” tab on the dashboard allows investors to find dedicated articles and information ranging from the basics of investing to niche topics like fractional shares. Users can also access information regarding stocks, ETFs, and other investment vehicles that they are interested in. 

Benefits of Investing in Fractional Shares 

Now that you understand the basics of buying fractional shares on Fidelity, let’s look at the various benefits of investing in fractional shares. 

Invest with a Small Amount of Money

Fractional shares on fidelity are perfect for a beginner investor. If you are just starting your investment journey and don’t have a substantial amount to invest in a particular stock, fractional shares are the perfect investment vehicle for you. They allow investors to enter the market and start accruing compound interest returns sooner. 

Diversify Your Portfolio with Limited Money

One of the basic rules of creating a portfolio is diversification. This allows you to spread your investments across various asset classes, therefore minimizing risk. By owning a variety of stocks or ETFs, you can reduce the likelihood of loss if any one of your stocks plummets. Fractional share trading allows investors to buy stocks for as little as $1, allowing them to buy a large selection of stocks with a limited amount of money. 

Better Dollar Cost Averaging Options

Dollar-cost averaging is based on a consistent dollar amount rather than a set share amount. This allows investors to invest a set amount of money regularly. With time, this may allow you to pay less per share than you would if you bought all of the shares at once. As you can buy shares based on a set amount, you don’t have to buy a full share. Otherwise, your money sits in a cash account until you have enough to buy a whole share. 

Drawbacks of Investing in Fractional Shares on fidility

Limited Selection of Stocks

Since not all stocks are available for fractional investing, you might not be able to invest in your desired company. Fractional share investing has a limited selection of stocks as compared to buying whole shares. 

Liquidity Concerns

Fractional shares don’t trade as often or quickly as whole shares, meaning you might not get immediate asset liquidity with this investment vehicle. Brokers often wait to accumulate enough fractional share orders to buy whole shares, which reduces the speed of orders. Moreover, not every fractional share is in demand, so it can take a long time to sell or buy fractional shares.

Rights of Shareholders

Depending on the brokers, fractional shares often don’t allow you to exercise voting rights if you own less than a whole share. It ultimately depends on the broker you are associated with. For example- Robinhood adds up fractional shares into whole shares to report votes to companies. On the other hand, brokers like Stash don’t allow investors to vote on a company unless they have at least one whole share of the company.

Transfers

Most brokers don’t allow to transfer of fractional shares to other brokers. They transfer any whole shares and sell any fractional shares to give you as cash. This can be a major inconvenience as may be able to purchase shares quickly with another broker. Moreover, liquidating fractional shares also has unintended tax implications if any fractional shares have increased in value. 

Dividends

As fractional shares as portions of whole shares, you also get portions of the whole stock’s dividends, if you own fractional shares. For example- if a stock has a payout of $1 per share and you own half a share of that particular stock, you will get $0.50 as payouts. 

Final Words

If you are new to the world of investing and are wondering “Does Fidelity offer fractional shares?” The answer is Yes. Fidelity is an online brokerage platform that allows investors to buy fractional shares in just a few minutes. If you are looking for the best platform to invest in fractional shares, there are over 7,000 stocks and ETFs in the form of fractional shares on Fidelity. We have provided a step-by-step guide on how to buy Fractional shares on Fidelity along with its pros and cons. 

Overall, fractional shares are a great investment vehicle that can help you diversify your portfolio with a minimal amount of money. Moreover, it allows you to invest a set amount of money instead of the usual number of shares, maximizing your income potential. 

Frequently Asked Questions(FAQs)

Q. Can you buy Exchange-traded funds(ETFs) as fractional shares?

Ans. Yes, you can buy ETFs as fractional shares on Fidelity. The platform offers over 7,000 stocks and ETFs in the form of fractional shares to users. Moreover, you can also take advantage of FidFolios, which allows investors to create their own personalized portfolio of an index of stocks and ETFs.

Q. Does Fidelity offer fractional shares for purchasing?

Ans. Yes, Fidelity is a top brokerage platform that offers more than 7,000 different types of stocks and ETFs to buy as fractional shares. If you are interested in investing in fractional shares, Fidelity is one of the best brokers to get you started.

Q. What is Fidelity?

Ans. Fidelity is a leading U.S. brokerage platform that was founded in 1943 and headquartered in Boston. The company has over 40 million individual investors and around $10.3 trillion in assets under administration and $3.9 trillion in discretionary assets. Over the years, Fidelity has maintained its foothold in the industry by offering competitive products while also maintaining a low-fee structure.