What are fractional shares—and how do they work?

A single share of a high-priced stock such as Amazon or Berkshire Hathaway can cost hundreds or even thousands of dollars, putting it out of reach if you’re investing on a budget. But you don’t always need enough money for a whole share to get started. Fractional shares offer another way in.

A fractional share is a portion of a whole share of stock or an exchange-traded fund (ETF). Instead of buying one full share, you can invest a specific dollar amount and own the corresponding fraction.

Fractional shares can make investing more accessible. They also can make it easier to build a diversified portfolio and invest consistently over time.

A single stock share doesn’t always have to belong to one investor. With fractional investing, it can be divided up, and you can choose how much of the share you want to invest in based on its price.

For example, say a share costs $100. If you invest $35, you’ll own 0.35 shares, or 35% of one share. If you invest $20, you’ll own 0.20 shares, or 20% of one share. Put together, investments from several people can make up a whole share. The amount each person invests determines the fraction they own.

The same basic idea applies if you’re investing on your own. If a stock costs $900 and you have $100 to invest, you could buy a fraction of the share instead of waiting until you have enough for the whole thing. Another way to think about it: you can invest by dollar amount rather than by the number of whole shares. This can apply to both individual stocks and ETFs.

Generally, fractional shares come from direct purchases or certain account transactions. You can buy them directly through a brokerage that offers fractional share investing, receive them through a dividend reinvestment plan (DRIP) or end up with them after certain stock splits.

Some brokerage firms let you invest a specific dollar amount rather than specifying a whole number of shares. The brokerage then calculates the fraction you’ll receive based on the investment’s current price.

For example, if a stock costs $500 per share and you invest $50, you could receive 0.1 shares. The exact process, available investments and minimum investment amounts vary by brokerage firm.

Investing by dollar amount can make it easier to put smaller amounts of money to work without waiting until you can afford a full share.

Fractional shares have long been associated with DRIPs. When your dividends are reinvested, the amount may not cover the cost of a whole additional share. Instead, you may receive a fractional share. Certain stock splits also can result in fractional shares.

Today, dollar-based investing has made fractional shares more widely available to individual investors. Whether you’re investing a specific dollar amount or reinvesting dividends, the underlying idea is the same: you don’t have to afford a whole share to invest.

Fractional shares can offer several advantages, especially if you’re starting with a smaller amount or investing regularly.

These partial shares can lower the amount of money you need to invest in a particular stock or ETF. Instead of saving enough to buy one whole share, you can invest an amount that fits your budget.

When a stock has a high share price, the flexibility of fractional investing can make it easier to start investing with less money.

Diversification means spreading your money across different investments and asset classes rather than putting it all in one place. Instead of using your entire investment amount to purchase one whole share, you may be able to divide it among several investments.

Of course, buying fractional shares doesn’t automatically make your portfolio diversified. Your overall mix of investments still matters. But fractional shares can give you more flexibility as you build that mix.

Fractional shares also can work well with dollar-cost averaging, a strategy where you invest a fixed amount on a regular schedule regardless of what’s happening in the market.

For example, you might invest $100 each month. When prices are higher, that $100 buys fewer shares. When prices are lower, it buys more.

Over time, this approach can help reduce the pressure to decide when the “right” time to invest might be. It doesn’t eliminate investment risk or guarantee a profit, but it can help you build a consistent investing habit.

Fractional shares can make investing more accessible, but they aren’t identical to whole shares in every respect. The rules can vary depending on the brokerage firm and investment.

Here’s how they compare to whole shares on a few key points:

Imagine you own 0.5 shares of a stock that pays a $2-per-share dividend; you would generally receive a $1 dividend. Your brokerage’s rules will determine how dividends, stock splits and similar events are handled.

Transferability is another important consideration. FINRA points out that fractional shares generally can’t be transferred to another brokerage firm. If you move an account, you may need to sell those shares first, which could result in a capital gain or loss in a taxable account.

Before you start investing, consider these three steps:

1. Check what your brokerage offers. Not every brokerage firm offers fractional share investing, and those that do may have different minimums and eligible investments. Thrivent offers fractional share investing through its brokerage accounts.
2. Choose a dollar amount that fits your budget. Rather than focusing on the price of a whole share, decide how much you’re comfortable investing. Your brokerage will determine the fraction you receive based on the investment’s current price.
3. Connect it to your broader goals. Fractional shares are one way to invest, but your overall portfolio still matters. Think about how the investment fits with your goals and investment strategy.

Starting with a smaller amount can make investing feel more manageable. Just remember that the amount you invest is only one part of the decision. What you invest in matters, too.

Fractional shares can make it easier to invest smaller amounts, spread your money across different investments and use a dollar-cost averaging strategy.

But fractional shares aren’t an investment strategy on their own. They’re simply one way to access investments while building an investment portfolio. Whether they make sense for you depends on your financial goals, budget, time horizon and risk tolerance.

If you’re not sure where fractional shares fit into your broader investment plan, consider talking with a Thrivent financial advisor. They can review your goals and help you decide whether fractional shares or another investing approach may make sense for you.