In recent years, investing in fractional shares has become more popular. More brokerage account platforms have started to allow buying of fractional shares. You can buy fractional shares of stocks, mutual funds, and ETFs, but you probably already knew that.
You can only buy fractional shares of VTI from some brokerage platforms. However, with Vanguard you can reinvest your ETF dividends that come from a split stock back into the stock as fractional shares.
VTI is a good ETF to invest in due to its diversification, however, VTI (Vanguard Total Stock Market Index Fund ETF) is only available through Vanguard as full shares.
You cannot buy fractional shares of ETFs, like VTI, at all brokerages. For example, at Vanguard you can only buy shares of mutual funds, such as VTSAX. To buy fractional shares of an ETF like VTI you will need to go to another brokerage.
Some Brokerages that allow for ETFs to be purchased as fractional shares are:
Fidelity offers a good choice of ETFs as fractional shares. VTI is one ETF that you can purchase through the trading platform. Fidelity also offers fractional share purchases on stocks.
M1 allows the buying of fractional shares on ETFs, stocks and mutual funds.
With Robinhood, you can buy a fractional share of ETFs and stocks worth more than $1 per share.
VTI and other ETFs are eligible for fractional share purchases on the Interactive Brokers trading platform.
There are a few reasons why investors choose to invest in fractional shares. Reasons include being able to invest in stocks you couldn’t otherwise afford and diversifying your portfolio.
To invest in stocks you otherwise can’t afford
Buying fractional shares is one way to start investing in stocks, ETFs and mutual funds that you couldn’t otherwise afford. For example, if you only had $100 to invest, but wanted to buy VTI, you could instead purchase a fraction of a share of the ETF for $100.
To diversify your portfolio
One way to diversify your portfolio is to buy fractional shares of an ETF like VTI so that you can have access to a number of stocks without having to buy an entire share.
Buying fractional shares of VTI will get you into a good amount of stocks, making it a wise investment for purchasing fractional shares. As mentioned, however, you cannot do this with Vanguard, so you will need to go to a brokerage that allows for the buying fractional shares of VTI.
With Vanguard, you can reinvest your dividends to buy fractional shares. As discussed in a previous post, there are ways to invest in fractional shares on brokerage platforms that do not allow the outright purchase of fractional shares. This involves reinvesting your dividends which you earn from stock splits back into the stock, regardless of whether you have enough to buy a full share or not. This is one exception many brokerage platforms have when it comes to holding fractional shares of an ETF.
When a company splits a stock, you end up with fractional shares. You can reinvest those dividends back into the stock on the same date your dividends are paid via some brokerage’s Dividend ReInvestment Plan (DRIP). For more information on DRIP and stock splits, see my recent post, here.
Along with those that allow purchasing fractional shares of ETFs, (with the exception of Interactive Brokers) the following trading platforms allow reinvesting your dividends of fractional shares:
- Charles Schwab
- TD Ameritrade
- Merrill Edge
Due to the fact that fractional shares are relatively new, as is the technology that they are based on, some brokerages are hesitant to allow for the trading of fractional shares. It basically comes down to the fact that algorithms that 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 platform as it becomes more popular with novice investors.
VTI is a good long-term investment. If you are just getting started in the market and have a very minimal amount, say only $100 to spend, then investing in VTI, even as a fractional share is a good option. Of course, you will have to do this on a platform other than Vanguard.
VTI is an ETF that offers a good amount of diversification, so investing what you have now in the stock may be a solid option for your future. You can always top up your investment with more fractional shares by putting in a specific amount of money each week, or month into the fund.
Although you cannot buy fractional shares of VTI on Vanguard, there are other trading platforms that allow for you to purchase it this way. You can also always reinvest your dividends that come from stock splits as fractional shares on most brokerage platforms.
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