Investments can be tricky, especially if you don’t have the right information. One such complex aspect is deciding whether you should buy fractional shares or whole shares. There are a lot of factors to consider when making this decision, so today, let’s take a look at some of those so you can make an informed decision on what’s right for your situation!
Expenses
In the case of fractional shares investing, you’re paying a premium for the privilege. These small pieces of stock aren’t as liquid as whole shares, so the market price might be different from the per-share value of your fractional holdings on any given day. That can mean that if you sell them for less than what they are worth on paper, you might have to accept a loss. In addition, if you need to sell them quickly and don’t want to wait for an uptick in their price in order to break even on your investment (or make money), then it might be hard or even impossible for you to do so without taking a loss or breaking even.
Liquidity and trading options
Fractional shares are often illiquid, meaning you may have to wait a long time to sell them. According to SoFi’s experts, “The smaller the trade increments (think penny stocks), the greater likelihood that your share will become illiquid and more difficult to sell.”
In addition, fractional shares are often traded in small increments (which can be good for investors looking for low-cost trading), but this means that you may also pay significant fees for each transaction. Furthermore, fractional shares may not be tradeable on all exchanges: some brokers offer access only to certain exchanges where trading opportunities are limited or nonexistent.
Risk
Although fractional shares have a lower entry cost, they also carry lower liquidity. If you’re looking to buy or sell a stock and can’t find a buyer at the price you want, then you may need to either pay more or accept less than what other investors are willing to pay.
Fractional shares may not be as liquid as whole shares of the same security because they represent fewer outstanding units than an equivalent whole-share investment. This means that finding buyers when selling your fractional shares could prove difficult if there aren’t many buyers interested in purchasing them at any particular time (or even any time). Conversely, if you want to buy fractional shares but no sellers are available for your desired purchase price, then your only option may be buying whole shares instead—which will cost more money than just investing in fractions alone would have incurred (because whole-share investments generally come with higher management fees).
Customer service
Customer service is an important aspect of any business, and no less so in the world of fractional real estate investing. When dealing with a broker or financial advisor, you should have the option to get in touch with someone if you have a problem or question. This can be via phone or email and should always be available during regular business hours. If they do not respond immediately when you contact them, it will make you feel uncomfortable about doing business with them.
It is important that you consider all the above-mentioned factors before making an investment in fractional shares. It will help you make a better decision and rest assured knowing that you have made the right decision.
