Do Fractional Shares Make Money? Understanding the Growth and Benefits
The use of fractional shares has become increasingly popular among investors looking to build diverse and profitable portfolios. This article explores whether fractional shares can generate significant financial returns and examines a real-world case study to demonstrate their potential for profit.
Introduction to Fractional Shares
Fractional shares allow investors to purchase portions of a single share of stock rather than the full share price. This flexibility is particularly advantageous for individuals with limited capital or those interested in niche or high-cost stocks. Investors can still participate in the growth potential of a company while managing their budget more effectively.
Portfolio Growth with Fractional Shares
As an example, consider a portfolio fully invested in fractional shares from January 2020 to March 2021. At the outset, the investment was just $100, with weekly investments incrementally increasing to reach $17 per week. In 17 months, with dividends reinvested, the portfolio grew to over $3,600. This represents an 18% increase in value over the cost value, demonstrating the potential for substantial growth.
Dividend Yield and Cost Basis
The dividend yield on cost at the end of June was 2.84%, and the cost in fees was just 0.03%. These figures highlight the efficiency of the investment strategy and the sustainability of the returns. The low cost basis minimizes fees, enhancing the overall profitability of the portfolio.
Automation and Flexibility
The portfolio was managed through an automated platform such as M1 Finance. This platform automatically allocated cash into various shares or ETFs, allowing for seamless diversification. The user could set up the account with stocks when initially opening the account, and M1 then handled the allocation and reinvestment of dividends. This automation ensures that even lower amounts can contribute significantly to the portfolio over time.
Investment Holdings
The portfolio includes a mix of high-cost stocks like Amazon and Google, as well as cash-flowing REITs (Real Estate Investment Trusts) and Canadian stocks. This diversification helps mitigate risk and ensures that the portfolio benefits from various market dynamics. Over 17 months, the growing dividends demonstrate the reliability and profitability of the selected investments.
Real-World Performance
The transition from small dividends to significant income showcases the growth potential of fractional shares. For instance, the very first dividend received was just one cent, while current weekly dividends can exceed $1.79, with some months yielding over $3.00 in a single day. Peak dividend income months include June, September, December, and March.
Conclusion
In conclusion, fractional shares do indeed make money. The strategic use of such shares allows for long-term growth and increased profitability, especially when combined with automation and smart reinvestment of dividends. As demonstrated by the case study, fractional shares can be a powerful tool for investors looking to build and grow their portfolios.
Ultimately, the key lies in selecting the right stocks, understanding the cost structure, and leveraging automated platforms to manage and grow the portfolio effectively. With these strategies in place, fractional shares can contribute significantly to an investor's financial success.