What is fractional investing?

How does fractional investing work?

Say a company’s share price is $200 and you’ve got $15 to invest. With fractional investing, that $15 buys you 0.075 of a share, and you start benefiting from owning it straight away—you don’t have to wait until you have the full $200 to start.

The same logic applies at any amount. Invest $1,500 in that $200 share and you’ll get 7.5 shares. Without fractional investing, you’d get 7 whole shares and be left with $100 sitting uninvested.

Why fractional investing helps

You invest in dollars, not shares. Instead of working out how many whole shares you can afford, you decide how much money to invest.

Your money gets to work straight away. There’s no cash sitting around while you save up for a whole share. Every dollar you put in goes into the market.

Diversifying gets easier. You don’t need a full share’s worth of cash for each company or exchange-traded fund (ETF) you want in your Portfolio. Smaller amounts stretch further across more investments.

Dividends and distributions are reinvested in full. You’ll receive dividends and distributions in proportion to what you own—for example, if you hold 0.5 shares of a company, you'll get half the dividend of a full share. And however small that amount, it doesn't get lost to cash drag: reinvested dividends and dividend reinvestment plans put the full amount straight back into your investments, not just what covers a whole share.

Dollar-cost averaging is simpler. If you’re investing the same amount at regular intervals (manually or with auto-invest), fractional investing means that amount is always fully invested—whatever the share price happens to be that day.

You can start small. You don’t need to save up the value of a whole share before you begin. Small amounts get you started sooner, so compounding has longer to work in your favour.

How Sharesies makes fractional investing possible

To offer fractional shares, Sharesies operates an Investor Directed Portfolio Service (IDPS). When you invest with Sharesies, your shares are held for you as an interest in the IDPS, on a pooled custodial basis alongside other investors’ holdings.

Buy and sell orders on an exchange are for whole shares only. We use fractional service providers to top up orders so that a whole share can be traded on the exchange. Sharesies’ related New Zealand company, Sharesies Limited, has some of its own corporate holdings (pooled with Sharesies investors’ holdings) in the Platform to top up sell trades where needed. 

To learn more about how your investments and money are held, see our article on custody.

How is owning shares through an IDPS different from direct ownership?

Owning shares through an IDPS comes with some differences compared to direct ownership, and they’re worth knowing before you start.

Voting rights and corporate actions

Investors who hold shares directly can typically vote at company meetings and take part in corporate actions offered to shareholders. Because your investment sits within the IDPS, these rights don't pass through to you in the same way they would with direct ownership.

Order prices and execution

The price you get on an order won't always match the exact market price at the moment you place your order. Your order can be bundled and go to market with the orders of other investors or our fractional service provider.

Investment transfers

Exchanges typically only recognise and trade whole shares or units. Fractions you hold with Sharesies can be sold, with the proceeds going to your Wallet, but they generally can’t be transferred to another provider as a fraction. 

It’s worth thinking through the tax implications of buying, holding, and selling fractional investments through Sharesies.

FAQs

Is fractional investing the same as buying a whole share? No. Fractional investing means you own a portion of a share, sized to match the dollar amount you invested, rather than being restricted to just whole shares.

Can I sell a fraction of a share? Yes. You can sell part or all of a fractional holding through Sharesies, and the proceeds go to your Wallet.

Do I get dividends on fractional shares? Yes. You’re paid a dividend or distribution in proportion to the fraction you own.

Can I transfer fractional shares to another broker? Generally, no. Fractions held with Sharesies usually can’t be transferred elsewhere as fractions.

How does Sharesies let investors buy fractional shares? Sharesies operates an Investor Directed Portfolio Service (IDPS), holding investors’ shares in a pooled custodial model, and, where needed, its related company Sharesies Limited tops up buy and sell orders so whole shares can be traded on the exchange.

Is fractional investing only useful for people with small amounts to invest? No. It also helps with diversification and dollar-cost averaging at any investment size, since every dollar—regardless of share price—can be put to work.

Further reading: the Sharesies IDPS Guide, and the Australian Government’s MoneySmart page on fractional investing.