Writer: Steve Dinnen
Unable to resist the lure of a bad pun, might I suggest that sliced shares could be the best thing going for young investors since sliced bread?
Proper investing calls for a well-diversified portfolio, and doing that as a fresh and relatively penniless college graduate might be a challenge. Robinhood, the online trading platform, was among the first to roll out a solution for this problem facing eager young investors with what is called fractional share ownership. This allows you to buy less than a single share – just a slice – of stock if you care to. While it might be hard to afford one whole share of Amazon, at $3,142 per share, without tying up an outsized percentage of your entire start-up investing budget, you can now buy just half a share, or a tenth, or whatever fraction that pleases you. That will leave enough money to buy a fraction of Alphabet Inc. (Google), at $1,544 per whole share.
Robinhood has been joined in this by big trading firms such as Fidelity and Charles Schwab. The people at Schwab told me that the sliced shares program is aimed at younger or new investors, and older, more affluent investors who want to give stock to children or grandchildren as a gift. At accounts they have opened so far, they have seen that 13% are custodial accounts. Normally, just 3% of Schwab accounts are custodial.
The most popular investment choices at Schwab have been companies that younger people would find attractive – Amazon, Apple, Microsoft, Netflix and Facebook have been the top five selections. Buying even one share of each of those stocks would cost about $4,200. Schwab reports the average order to be $378, so clearly there’s a lot of slicing going on.
Investment choices are currently limited to stocks that are part of the S&P 500 Index. That would include Berkshire Hathaway B Class shares, which sell for around $221 each, but not its A Class shares; at $338,000 per share, they would be an excellent candidate for a partial share buy-in for even deep-pocketed investors.
Technically you’re not buying a physical partial share, but a trust-like instrument that the broker has arranged that will buy a share, or two, or 2,000 of a company, and then parcel it out among program participants.
One broker I spoke with said sliced share programs might attract investors who are not properly informed about the risks and rewards of the stock market. That’s a possibility, but with proper guidance from a seasoned grandparent, it’s a good way to dip a toe into the water before leaping headlong.