Investing plays a crucial role in the financial strategies of many Canadians. Nonetheless, not all individuals have the means to acquire high-priced stocks, which can limit the potential growth and returns within their investment portfolios. This is where the concept of fractional shares in Canada comes into play.
Fractional shares offer a solution, allowing you to leverage even small amounts of capital to become a partial owner of your preferred stocks. By leveraging fractional shares, even with a limited budget, you can partially own your favourite stocks. This innovative approach enables you to invest in a fraction of a single share, eliminating the need to purchase an entire share.
The beauty of fractional shares lies in their ability to enhance portfolio diversification and provide access to otherwise unattainable costly stocks. This approach further allows you to effortlessly broaden your investment horizons by engaging with multiple ETFs without straining your finances.
Curious to know more about purchasing fractional shares within Canada? This article will enlighten you on the hows and wheres of acquiring fractional shares within the Canadian investment landscape.
What Are Fractional Shares?
Fractional shares provide an innovative way to invest in stocks based on a specific dollar amount rather than the share price. Think of it as owning a slice of a company’s stock, where the size of the slice depends on your investment.
When you buy a full share in a company, you’re essentially owning a piece of that company. With fractional shares, you own a smaller piece of that piece, making it more accessible. For example, you could cut that initial piece in half to get two fractional shares.
These smaller portions can come from events like dividend reinvestment plans, stock splits, or mergers. Brokers also intentionally offer them, and many online platforms support buying and selling fractional shares.
In simple terms, fractional shares let you own fractions of complete company shares. By investing, you’re building a diversified portfolio comprising fragments of various companies’ stocks. These fractions can come from stock trading, stock splits, or dividend reinvestment.
The great thing about fractional shares is their flexibility. You can enter the stock market with as little as $1, giving you access to big companies like Shopify, Google, or Amazon. This way, you can diversify your investments even without a large budget.
How To Buy Fractional Shares in Canada
Buying Fractional Shares in Canada is a straightforward process. You can begin by setting up a brokerage account with a platform that supports fractional shares. Renowned choices like Wealthsimple Trade and Interactive Brokers are available.
Following account creation and funding, search for your desired stock and choose the fractional shares purchase option. It’s that simple!
Let’s take a look at the two top recommended platforms to buy fractional shares in Canada:
1. Wealthsimple Trade
Wealthsimple Trade is a trailblazer in the investment realm that opens the door to fractional share trading, revolutionising access to esteemed companies like Google and Amazon. Formerly considered out of reach for smaller investors, these giants are now within your grasp.
Notably, Wealthsimple has earned recognition as the victor in the 2022 Finder Stock Trading Platform Awards for both Best for Beginners and Best for Canadian Stocks. This accolade underscores the platform’s commitment to user-friendliness, simplicity, and the bonus of zero-fee stock and ETF trades.
A groundbreaking milestone occurred when Wealthsimple Trade became the inaugural Canadian investment brokerage introducing fractional share purchasing. This development allows investors to seamlessly trade fractional shares of over 500 Canadian and U.S. stocks and ETFs via the Wealthsimple Trade platform.
Intrigued investors seeking an accessible gateway to the world of fractional shares need look no further than Wealthsimple Trade, where renowned companies, once beyond reach, now form part of your investment journey.
Wealthsimple Trade offers fractional shares to companies like:
- Microsoft
- Amazon
- Toronto-Dominion Bank (TD)
- Netflix
- Royal Bank of Canada (RBC)
- Facebook/Meta
- NVIDIA
- Airbnb
- Shopify
- Alphabet
- Apple
- Canadian National Railway (CNR)
- Coinbase
2. Interactive Brokers
Pioneering fractional share trading within the investment sphere, Interactive Brokers emerges as an exceptional platform tailored to intermediate and advanced traders, equipped with an impressive array of tools.
Distinguishing itself, Interactive Brokers earned the prestigious title of Best Overall Broker in the esteemed 2022 Finder Stock Trading Platform Awards. This accolade underscores its prowess in granting access to global markets alongside an extensive selection of investment options.
Whether you are an advanced, active, or professional trader, Interactive Brokers might align seamlessly with your needs. The platform presents a diverse toolbox for various trading styles coupled with competitive trading fees. Additionally, they offer two distinct platforms: IBKR Lite for casual investors and IBKR Pro for those well-versed in trading intricacies.
A standout feature is Interactive Brokers’ provision for fractional share trading of stocks listed across various U.S. markets. This extends a broader scope for investing, making the platform an enticing prospect for investors seeking flexibility and a comprehensive suite of trading options.
Interactive Brokers offers fractional shares for companies like:
- ARCA
- NASDAQ
- AMEX
- BATS
- NYSE
Benefits of Fractional Shares
Fractional shares offer a unique investment avenue, yet their suitability depends on individual circumstances. Let’s delve into the benefits and limitations to help you assess if they align with your goals:
1. Enhanced Diversification without High Costs: Diversification is a cornerstone of sound portfolio construction. Fractional shares enable you to spread your investments across various stocks, reducing the impact of a single stock’s poor performance on your portfolio.
2. Accessible Investment Threshold: Investing in fractional shares starts with as little as $1, granting you access to multiple stocks without substantial capital. This low entry point allows you to harness the power of compounding returns across your investments.
3. Exposure to Major Companies: Fractional shares in Canada provide exposure to significant Canadian and US companies like Shopify, Royal Bank of Canada (RBC), Google, Amazon, and more. Regardless of the share price, you can engage with these renowned companies within your budget.
Drawbacks of Fractional Shares:
1. Limited Stock Selection: Fractional trading doesn’t encompass all stocks. This limitation stems from the availability of a restricted number of company shares, in contrast to the broader selection with whole shares.
2. Restricted Voting Rights: When involved in fractional trading, participation in company decisions may be limited. While some companies combine fractional shares with full shares for voting, others require ownership of at least one whole share to vote.
3. Reduced Liquidity: Fractional shares exhibit slower asset liquidity than whole shares. Their trading frequency and volume differ as brokers accumulate fractional orders to purchase complete shares. This can delay order execution, particularly for less in-demand fractional shares.
4. Non-Transferable Nature: Certain brokers prevent the transfer of fractional shares to other brokers. Instead, they offer cash after selling fractional shares. Consequently, liquidating rising fractional share values might lead to tax implications.
Fractional Shares Alternatives in Canada
When weighing the pros and cons of fractional shares in the Canadian investment landscape—such as the constraints of limited stock options, liquidity issues, and restricted rights—it’s essential to consider viable alternatives. Here, I present two noteworthy alternatives to fractional shares in Canada:
1. Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) offer an appealing alternative to fractional shares. These funds grant you exposure to diversified portfolios spanning various sectors, markets, asset allocations, and risk levels. With ETFs, constructing a well-aligned portfolio that matches your investment goals and risk tolerance becomes a streamlined process.
ETFs’ capacity to amalgamate stocks, equities, shares, and commodities within a single portfolio distinguishes them. This versatility caters to a wide array of investor preferences. You have the flexibility to establish a portfolio that holds a harmonious balance of stocks and bonds or one that leans more heavily towards either stocks or bonds.
Beyond flexibility, ETFs boast other advantages. Unlike some other investment vehicles, they provide liquidity, allowing you to easily buy or sell shares. Furthermore, ETFs are renowned for their cost-effectiveness, making them an efficient choice compared to certain alternatives.
2. Mutual Funds
Another alternative worth considering is mutual funds. These funds pool resources from multiple investors to invest in stocks, bonds, and various securities. As a mutual fund shareholder, you’ll share the investment costs, potential profits, and associated risks.
Managed by professional portfolio managers, mutual funds are structured to achieve the investment objectives of their participants and generate capital gains over time. What sets mutual funds apart is their endeavour to balance reducing high-risk exposure and maximizing investment returns.
It’s important to note that, compared to equities, mutual funds generally carry lower risk but are riskier than fixed-income investments. However, they can be relatively more expensive to trade when contrasted with ETFs, primarily due to the active management involved.
Final Thoughts on Fractional Shares Canada
Fractional shares Canada trading is ideal if you do not have a large sum of money to trade a complete share. Thus, they enable you to own a share in a big business where you cannot purchase full shares.
However, your fractional shares investment value depends on the size and cost per share of your company.
But are fractional shares right for you? Are you okay with their limited stock offerings, limited liquidity, rights and transfer restrictions? If you answer yes to the above questions, you should consider Wealthsimple Trade Fractional Shares when making a buying decision.
However, consider investing in ETFs or mutual funds if fractional shares are unsuitable. Above all, you should invest in a portfolio that meets your budget, financial objective and risk tolerance.
