Are Fractional Shares Just a Gimmick?

One area of finance that has been getting a lot of attention lately is the concept of “fractional shares” and their use in investment portfolios. In an effort to make investing cheaper and more available to the masses, certain brokerages are allowing clients to buy fractional shares so that investors aren’t burdened with having to pony up a large amount of cash to invest in a company they like. Traditionally, if a retail investor wanted to participate in the stock market, they would have to buy 100 shares (a round lot), and with Amazon currently trading around the $3,000 mark for a single share, that is a massive cash outlay. This opinion piece from Bloomberg blasts the creation of fractional shares as another Wall Street gimmick to feed on retail speculation. Previously in Sagacious, we have voiced our opinion that commission-free trading could influence irrational investor behaviour; however, this viewpoint opposing fractional shares is something we aren’t as quick to agree with. As technology continues to improve, the ability for individual retail investors to participate in the stock market increases as monetary roadblocks are removed. Not only will fractional shares give individuals who couldn’t previously participate in the market because of monetary hurdles the ability to do so, but it will also make it easier and more efficient for investors to build their own low-cost indexed strategies. We would challenge the author on his view that capital market participation should only be confined to a select few, and that broader access for a wider swath of the population is indeed progress.