Fractional shares for small investors have changed the game in the world of investing. Not long ago, many beginners found themselves priced out of quality stocks like Amazon (AMZN), Apple (AAPL), or Berkshire Hathaway (BRK.B) because they couldn’t afford to buy full shares. Today, that barrier has largely been removed thanks to fractional shares.
Fractional shares allow investors to buy a portion of a single stock, making it easier than ever to invest in top-tier companies—even with a small budget. This innovation is especially powerful for those who follow a long-term, buy-and-hold investment philosophy. Rather than chasing risky penny stocks or market fads, investors can now slowly build wealth by consistently investing in high-quality businesses, no matter their starting capital.
In this article, we’ll explore how fractional shares work, why they’re ideal for small investors, and how they align perfectly with a value investing strategy inspired by Warren Buffett. We’ll also highlight some common mistakes to avoid and share actionable tips to get started today.
What Are Fractional Shares?
Fractional shares represent a portion of a full share of a company’s stock. Instead of buying one entire share, you can purchase, for example, 0.25 shares of Microsoft (MSFT) or 0.10 shares of Google (GOOGL).
🔍 How Fractional Shares Work
Let’s say Tesla (TSLA) is trading at $900 per share. If you only have $90 to invest, you could buy 0.10 shares of TSLA. Your investment still grows proportionally with the stock’s performance, and you’ll still receive a portion of any dividends paid, depending on the platform you use.
Most major brokers, including Fidelity, Charles Schwab, Robinhood, and M1 Finance, offer fractional shares. These brokers allow users to invest a fixed dollar amount, and the system calculates how much of a share that amount buys.
For a deeper dive, you can also check out Investopedia’s explanation of fractional shares.
Why Fractional Shares Are a Game Changer for Small Investors
Fractional shares provide small investors with powerful tools that used to be reserved for the wealthy. Here’s why they matter:
1. Access to High-Quality Companies
Instead of buying cheap, speculative stocks, you can invest in proven businesses like:
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Apple (AAPL)
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Johnson & Johnson (JNJ)
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Costco (COST)
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Berkshire Hathaway (BRK.B)
These companies have long histories of strong earnings, competitive advantages, and solid management. Even if their share prices seem high, fractional shares make them accessible. You can explore Morningstar’s wide moat stocks list to find companies with durable competitive advantages.
👉 Related: Why Penny Stocks Are Too Risky for Smart Investors
2. Diversification with Smaller Budgets
Building a diversified portfolio once required thousands of dollars. Now, you can spread $100 across multiple sectors and companies with ease.
Example:
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$25 in AAPL
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$25 in JNJ
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$25 in COST
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$25 in V (Visa)
3. Perfect for Dollar-Cost Averaging
Fractional shares are ideal for dollar-cost averaging (DCA), where you invest a fixed amount regularly, regardless of market conditions. This helps reduce emotional investing and builds discipline.
How Fractional Shares Align with Value Investing
Value investing is about buying good companies at fair prices and holding them for the long term. Fractional shares allow investors to follow this strategy even if they can’t buy full shares yet.
Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” With fractional shares, investors don’t have to choose between affordability and quality—they can start building positions in wonderful companies immediately.
Check out:
🔗 How to Spot Undervalued Stocks Like Warren Buffett
🔗 How to Read a Balance Sheet Like Warren Buffett
Real-World Example: Building a Portfolio with $100
Let’s say you’re a beginner with $100 per month to invest. Here’s a sample allocation using fractional shares:
| Company | Ticker | Allocation | Share Price | Fraction Bought |
|---|---|---|---|---|
| Apple | AAPL | $25 | $180 | 0.139 shares |
| Costco | COST | $25 | $700 | 0.035 shares |
| Johnson & Johnson | JNJ | $25 | $160 | 0.156 shares |
| Visa | V | $25 | $270 | 0.093 shares |
By doing this monthly, you’d be dollar-cost averaging into a diversified portfolio of top-tier companies, slowly compounding wealth over time.
Read more: The Power of Compounding: How $10k Becomes $1M in 30 Years
Drawbacks and Considerations
While fractional shares are incredibly useful, there are a few things to keep in mind:
❌ Not All Brokers Offer the Same Features
Some only allow fractional shares for certain stocks. Others limit dividend reinvestment.
❌ May Encourage Emotional Investing
Just because you can buy $1 worth of stock doesn’t mean you should buy whatever is trending. Always do your research.
🔗 What Are Penny Stocks? Understanding the Risks and Realities
❌ Lack of Voting Rights
In some cases, owning a fractional share doesn’t come with shareholder voting rights.
How to Get Started with Fractional Shares (Step-by-Step)
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Choose a Brokerage
Look for brokers that support fractional shares: Fidelity, Schwab, Robinhood, M1 Finance, SoFi.
This NerdWallet comparison of the best brokers for fractional shares is helpful when evaluating your options. -
Set a Monthly Budget
Start with as little as $10–$100. Consistency matters more than size. -
Research Companies
Use resources like annual reports, balance sheet analysis, and valuation tools. -
Build a Watchlist
Track high-quality stocks you’d like to own over time. -
Invest Automatically
Set up recurring investments to leverage dollar-cost averaging. -
Stay the Course
Ignore short-term noise. Focus on long-term compounding.
Common Mistakes to Avoid
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📉 Chasing high-flying stocks without understanding the business.
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💸 Confusing a low share price with a bargain stock.
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📊 Ignoring portfolio allocation—fractional investing still requires diversification.
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🤯 Overtrading because the barrier to entry feels low.
Investors should remember that even fractional investing requires understanding what you own. The SEC’s beginner guide to investing is a great place to start learning
Actionable Takeaways
✅ Fractional shares make buying into great businesses accessible to everyone.
✅ Combine with dollar-cost averaging for a consistent investing habit.
✅ Avoid risky penny stocks and speculative trades—stick to long-term value.
✅ Use platforms that offer automatic investing and low fees.
✅ Focus on owning a piece of a great business, not just a cheap stock.
Final Thoughts: Benefits of Fractional Shares for Small Investors
Fractional shares for small investors represent one of the most important innovations in modern investing. By removing the barrier of high share prices, fractional shares enable anyone to start building a diversified, long-term portfolio—even with a modest budget.
Rather than speculating on risky stocks or market fads, you can now own fractional pieces of solid, proven companies. Combined with a buy-and-hold approach, tools like dollar-cost averaging, and a value investing mindset, fractional shares help build real wealth over time.
As always, the best investment is the one you understand. Do your homework, invest consistently, and trust in the power of compounding.
Happy Investing!