Are you looking to diversify your portfolio without breaking the bank? Fractional shares Canada could be what you need.
Investing in stocks can be challenging when you figure the cost and fees.
But with fractional shares, you can use the little money you have to own parts of your favourite stocks.
As a result, you can diversify your portfolio with several ETFs without spending much.
However, there are only a few fractional shares trading platforms in Canada with Wealthsimple Trade being the pioneer.
Here I discuss Wealthsimple Trade fractional shares in Canada and their alternatives.
As the name implies, fractional shares are parts of a company’s full shares.
Thus, when you buy a fractional share, you buy a portfolio instead of a complete stock of a company.
Fractional shares could be from stock trading, stock splits or dividend reinvestment.
Whatever means a fractional share is rooted, it gives you the opportunity to participate in company’s stock with as little as $1.
So if you want to diversify your portfolios using the stocks of big companies such as Shopify, Google or Amazon, fractional shares are a fantastic method to accomplish so.
As you continue, you will learn about fractional shares Canada and their alternatives.
Fractional shares are available for all investors, but not all investors may find them suitable.
Depending on your needs, investment objectives and risk profile, you may find fractional shares worthwhile. Here’s why:
1. Less Expensive Portfolio Diversification
Diversification is one of the major rules of portfolio building. When you buy multiple shares of stocks, you don’t have to worry about the failure of one or a few stocks.
2. Affordable Investment Amount
As I mentioned earlier, you can buy several stocks with as little as $1 through fractional shares.
This gives you the opportunity of gaining from compounding returns of all the stocks without spending much.
Fractional shares in Canada expose you to big companies in Canada and the US such as Shopify, Royal Bank of Canada (RBC), Google, Amazon and Shopify.
Regardless of the cost of their shares, you can invest in them within your budget.
Yes, fractional shares Canada have several weaknesses that make them less attractive to every investor. These are:
1. Few Stocks
Fractional trading doesn’t include all stocks. This is because of the limited number of company shares available, unlike the broader exposure of a complete share.
2. Restriction of Rights
Your rights to voting on company matters may be restricted while on fractional trading.
For example, some companies combine fractional shares with full shares when reporting votes to businesses.
On the other hand, other companies do not allow you to vote on business matters unless you own at least one share in the company.
3. Limited Liquidity
Fractional shares have slow asset liquidity compared to full shares.
This is because they do not trade on the same frequency or in the same volume as full shares.
Brokers have to gather sufficient fractional orders to purchase full shares, which slows order filing.
Additionally, fractional shares may take longer to purchase or sell because not all are in high demand.
Certain brokers prohibit you from transferring fractional shares to another broker. Rather than that, they give you cash after selling any fractional shares.
Thus, there may be tax implications on liquidating fractional shares if the value of your fractional shares rises.
The cost of fractional shares in Canada depends on the company size and the cost of each share.
For example, if a company is selling $100 per share, you can buy up to 2 shares through fractional shares if you have $100.
Accordingly, you may buy several shares below the whole share price ($100).
Thus, you can see why it’s easy to diversify your portfolio by buying multiple slices instead of a whole share.
As I mentioned earlier, only a few brokers allow for fractional trading in Canada, such as Wealthsimple Trade, ShareOwner Investments Inc., and Interactive Brokers.
However, Wealthsimple Trade is the first and cost-effective fractional shares trading platform.
But before we discuss Wealthsimple Trade fractional shares, let’s have an overview of what Wealthsimple Trade is all about.
What is Wealthsimple Trade?
Wealthsimple Trade is a commission-free trading platform managed by Wealthsimple.
Through this platform, you can trade your favourite stocks and ETFs without worrying about commissions.
This is cost-effective because most online brokers charge more than $9 for the same service.
Moreover, with just $100, you can start trading on this platform without worrying about minimum account balance.
To learn more about Wealthsimple Trade, read this comprehensive review.
As mentioned earlier, Wealthsimple Trade is the first Canadian trading platform that enables Fractional Shares trading in Canada and the US.
Just recently, precisely on July 14, 2021, Wealthsimple Trade launched its fractional shares covering 14 stocks in Canada and the US.
Thus, with as little as $1, you can buy the shares of big companies in Canada and America, such as Shopify, RBC, Google and Amazon.
Interestingly, you can trade your fractional shares on Wealthsimple Trade commission-free.
Wealthsimple reasons for introducing fractional shares in its Wealthsimple Trade platform are to:
1. Meet Its Customers Needs
According to Wealthsimple, most of its customers have been requesting the inclusion of fractional shares on Wealthsimple Trade, hence the introduction.
2. Help Portfolio Diversification
Wealthsimple believes that fractional shares are key to diversifying a portfolio. By diversifying your portfolio, you will generate more gains and limit your investment risk.
3. Achieve its Mission
Wealthsimple is on a mission to democratize wealth creation among investors. Hence, fractional shares will help accommodate investors of all classes on its Wealthsimple Trade platform.
So no matter your investment objective, Wealthsimple helps you to achieve it within your budget.
Here are Wealthsimple Trade 14 fractional shares spread across Canada and the US:
|Canadian Companies||American Companies|
Royal Bank of Canada (RY)
Toronto Dominion Bank (TD)
Canadian National Railway Co. (CNR)
Thus, based on your needs and budget, you can invest in any of the above companies through Wealthsimple Trade without restriction.
Although the price of shares of the above Wealthsimple Trade fractional shares may vary, the formula of calculating your dividends remains the same.
But when choosing which company to invest in, your emphasis should be on the company size, share price and fees.
The first step of buying fractional shares in Canada is to identify a trading platform such as Wealthsimple Trade, ShareOwner Investments Inc. or Interactive Brokers.
However, to make the best decision, you will need to choose the best trading platform.
Of course, when it comes to the best fractional trading platform in Canada, Wealthsimple Trade is the answer.
What determines the best fractional trading platform is stock availability and trading costs. In all of this, Wealthsimple Trade got you covered.
In the following passage, I will work you through the process of buying fractional shares Canada through Wealthsimple Trade.
Here are the steps on buying fractional shares Canada through Wealthsimple Trade.
- Download the Wealthsimple Trade app on Google Play Store or App Store or visit the Wealthsimple Trade website.
- Search for “Fractional Trading.”
- Choose your favourite stock.
- Enter the amount of your fractional shares.
- Confirm your order.
Within a day, the order of your fractional share will be completed.
Furthermore, you will be notified of the execution price when the order is submitted to the market.
Considering the downsides of fractional shares in Canada, such as limited stock offerings, limited liquidity and rights restriction, you may not find fractional shares worthwhile.
So here I provide two fractional shares Canada alternatives you need to consider.
Exchange Traded Funds (ETFs) expose you to diversified portfolios of different sectors, markets, asset allocations and risk levels.
So with ETFs, you can quickly build a portfolio that meets your investment objective and risk tolerance.
Furthermore, ETFs can combine stocks, equities, shares, and commodities in one portfolio.
What I like about ETFs is their flexibility to meet the needs of several investors.
Thus, you can have a portfolio with a balanced allocation of stocks and bonds or one that is weighted towards stocks or bonds.
Moreover, unlike mutual funds, ETFs are liquid and low-cost.
Check out the best Canadian ETFs in 2021.
2. Mutual Funds
This refers to a combination of funds from several investors to invest in stocks, bonds, and other securities.
As a shareholder of mutual funds, you will be sharing in the investment expenses, risk and profit.
Handled by portfolio managers, mutual funds aim to meet the objective of their investors and generate capital gains.
What I like about mutual funds is their aim to reduce high risk while maximizing investment returns.
However, compared to equities, mutual funds are less risky but riskier than fixed income.
But as mentioned earlier, mutual funds are costly to trade compared to ETFs because they are managed actively.
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 in which you would not be able to purchase full shares.
However, your fractional shares investment value depends on the size and cost per share of the company you invest in.
But are fractional shares right for you? Are you okay with their limited stock offerings, limited liquidity, rights and transfer restriction?
If you answer yes to the above questions, you should consider Wealthsimple Trade Fractional Shares when making a buying decision.
However, if fractional shares are not suitable for you, consider investing in ETFs or mutual funds.
Above all, you should invest in a portfolio that meets your budget, financial objective and risk tolerance.
Yes, there are fractional shares in Canada. However, there are only a few brokers that allow fractional trading in Canada.
Brokers that allow fractional trading in Canada include Wealthsimple Trade, ShareOwner Investments Inc. and Interactive Brokers.
Furthermore, Wealthsimple Trade is the cost-effective platform for trading platform fractional shares in Canada.
Absolutely. You will receive dividends based on the fractional shares you invest in.
For example, if a share generates $0.50 on dividends, you will receive $0.25 as a dividend if you invest half of that share.
So how much dividends you get depends on the dividends of the shares and the amount you invest.
As with other investments, there’s no guarantee that you will make money while trading fractional shares.
But since fractional shares allow you to build a portfolio with low amounts, you can quickly diversify your portfolio across different stocks to reduce risk and maximize gains.
Moreover, you’re likely to generate returns from a diversified portfolio compared to when you invest in a single stock.
Yes, fractional shares are hard to sell because of their scarcity in the stock market.
This scarcity results from the fact that they’re not in high demand compared to other securities such as ETFs and mutual funds.
There are no Questrade fractional shares, just as we have Wealthsimple Trade Fractional Shares as of the time of writing this post.
Questrade has since 2017 stated on Twitter that it doesn’t have fractional shares. From all indications, Questrade is not likely to provide fractional shares soon.
However, most Canadians are currently enjoying Wealthsimple Trade fractional shares due to its commission-free offer.
If you’ve more questions on fractional shares Canada, let me know in the comment section.