Purchasing fractional shares of stocks and other securities has grown in popularity recently. Some brokerage platforms have sided with the trend and allow for the purchase of fractional shares.
Other brokers, like TD Ameritrade, do not allow for the outright purchase of fractional shares. However, they do allow for their purchase by reinvesting dividends. It is important to note that TD Ameritrade was recently purchased by Charles Schwab, though. So this may change in the future as Schwab is a broker that allows for the purchase of fractional shares.
In this article, we are going to talk about:
- Why TD Ameritrade could offer fractional shares in the future,
- The reason they probably don’t want to offer them yet,
- The only way you can get access to fractional share through TD Ameritrade,
- Some brokers who do offer fractional shares,
- The benefits of fractional shares and whether they’re for you.
Sounds good enough? Let’s get to it right away…
There’s a good change TD Ameritrade does offer fractional shares soon. Why do I think that?
In 2020, TD Ameritrade was acquired by Charles Schwab, which is broker who does offer fractional shares.
Of course, this doesn’t necessarily mean that an acquired firm must offer the same services as the parent company. But some consistency when it comes to what they offer to customers may be something that they will try to accomplish.
Due to the fact that fractional shares only come at a cost for brokers, some of them can be hesitant to offer them. So, this may explain why TD Ameritrade is one of them.
It basically comes down to the fact that algorithms track ownership of the pieces of each share. This adds more work for the brokerage platform.
More brokers are starting to offer purchases of fractional shares in order to be more competitive. However, when it comes down to it, the process of managing fractional shares takes a good amount of more work and thereby costs more too.
Fractional share trading will likely be seen on more brokerage platforms as it becomes more popular with novice investors.
As mentioned, along with some other brokers, TD Ameritrade allows you to reinvest your dividends to purchase fractional shares.
How does this work exactly? Well, TD Ameritrade allows you to reinvest your dividends back into that stock via a program called the Dividend ReInvestment Plan (DRIP).
This involves reinvesting your dividends back into the stock, regardless of whether you have enough to buy a full share or not.
With DRIP, investors can reinvest all of their dividends back into the stock, even if doing so causes the purchase of fractional shares. This is one way TD Ameritrade investors can get into the fractional shares game. Note that not all companies offer this program.
Charles Schwab allows for the purchase of fractional shares on S&P 500 stocks.
However, it does not allow for fractional purchases of ETFs, which can be a downside,
especially for TD Ameritrade customers who are looking forward to soon being able to
purchase fractionals shares as TD Ameritrade has been purchased by Schwab.
M1 Finance allows for the purchase of fractional shares of stocks and ETFs as long as the account has a $100 minimum starting balance.
Betterment is yet anotherplatform that allows for the purchase of fractional shares of stocks and funds of all kinds.
With Robinhood, you can buy a fractional share of ETFs and stocks worth more than
$1 per share.
With Interactive Brokers, you can buy fractional shares of stocks and funds starting at
There are a few reasons investors like to purchase fractional shares. The main ones are:
- To diversify your portfolio
Fractional shares work great for small funds because of the level of diversification they provide. You can own many different stocks without having to buy an entire share from each one.
- To afford stocks that are priced too high
Buying fractional shares is one way to start investing in stocks, ETFs… For example, let’s say that you want to buy a share of a stock that is priced at $1000. If you only have $700 available for investing, buying fractions of the share allows you access to it. Though you would not own an entire share, any change of value would be reflected in your position.
The answer to this question really depends on what you want to achieve as an investor. If you are looking to diversify and want to include some pricey stocks in your portfolio, purchasing fractional shares may be a good way to achieve this.
You can test the waters with fractional shares by reinvesting your dividends back into a stock as well. This could give you a way of investing in fractional shares without having to put more money into investments.
The Bottom Line
While TD Ameritrade does not currently offer fractional share purchases directly, that is soon likely to change as the company has been acquired by Charles Schwab. Due to the fact that Charles Schwab allows the purchasing of fractional stocks on the S&P 500, it is probable that TD Ameritrade will soon be allowing this too.
All in all, purchasing fractional shares is a good way for novice investors to acquire high-priced stocks and diversify their portfolios. Though TD Ameritrade doesn’t offer this service right now, many other brokers do (mentioned above).
Now, I hope you enjoyed this article and I’d appreciate you sharing it if you did.
Also, let me know down in the comments if you you have any further question!
Talk to you the next time…