Schwab Now Offering Fractional Shares

[james.hendrickson]

PSA for the forum community, schwab posted this on their website a few days ago. They'll be offering fractional shares soon.

https://www.schwab.com/stock-slices

[kork13]

That's pretty nice. I hope that's another trend (like free stock/ETF trades) that catches on throughout the industry.

[disneysteve]

I think this will be a great way to introduce kids to investing. With a $5 minimum purchase, that removes the entry barrier to the market. You can start gifting your kid a small amount of stock for birthdays or holidays and have them start investing with allowance or gift money or job earnings when they're teens. Easy to diversify with a small amount of money. With $50 you can own 10 companies, so your own little mutual fund.

[james.hendrickson]

I think this will be a great way to introduce kids to investing. With a $5 minimum purchase, that removes the entry barrier to the market. You can start gifting your kid a small amount of stock for birthdays or holidays and have them start investing with allowance or gift money or job earnings when they're teens. Easy to diversify with a small amount of money. With $50 you can own 10 companies, so your own little mutual fund.

Totally, I'd be buying this all day long for my kids.

[james.hendrickson]

That's pretty nice. I hope that's another trend (like free stock/ETF trades) that catches on throughout the industry.

Kork, that first came to mind when I saw it, I was thinking "wow, they must be responding to market pressure".

[bjl584]

Interesting. I'm guessing others will follow suit soon if this catches on

[Scallywag]

This would make dollar cost averaging on highly volatile shares even easier! Thanks for sharing! Any idea if TD Ameritrade does this, too?

[QuarterMillionMan]

Guys the mark up for a fraction of a share must be super high. Just like buying 1/10 of an ounce of gold bullion versus buying a full 1 oz gold bullion. You'll pay a lot more for ten 1/10 ounce bullions versus buying a full 1 oz bullion. Or when your car insurance gives you the option of paying your premium in full versus installments, you'll pay more if you choose the installments. I see this new Schwab fractional shares as an ingenious marketing ploy to yet monetize another way to sucker in the unwary. Schwab is not doing this as a good gesture to helping the novice investors get their feet wet.

[kork13]

Guys the mark up for a fraction of a share must be super high. Just like buying 1/10 of an ounce of gold bullion versus buying a full 1 oz gold bullion. You'll pay a lot more for ten 1/10 ounce bullions versus buying a full 1 oz bullion. Or when your car insurance gives you the option of paying your premium in full versus installments, you'll pay more if you choose the installments. I see this new Schwab fractional shares as an ingenious marketing ploy to yet monetize another way to sucker in the unwary. Schwab is not doing this as a good gesture to helping the novice investors get their feet wet.

Schwab already offers free stock/ETF trades, so I'm assuming this has to do with the bid-ask spread somehow? But I've never been extremely clear on exactly is entailed, or how that provides Schwab (or any broker) a transnational fee.

[james.hendrickson]

Schwab already offers free stock/ETF trades, so I'm assuming this has to do with the bid-ask spread somehow? But I've never been extremely clear on exactly is entailed, or how that provides Schwab (or any broker) a transnational fee.

Good point Kork, good questions to ask would be: how much are you paying for the shares? And, whose shares are they really?

[disneysteve]

Guys the mark up for a fraction of a share must be super high. Just like buying 1/10 of an ounce of gold bullion versus buying a full 1 oz gold bullion. You'll pay a lot more for ten 1/10 ounce bullions versus buying a full 1 oz bullion.

True. So if a share is $50 and you invest $5, are you actually going to get 1/10 of a share or will it be less than that?

How does that work in mutual funds? Or are they protected by the fact that they're buying for thousands of clients at once?