How Fractional Shares & Stock Split Works?! Everything You Need to Know!
By Miguel Dos Anjos
What Are Stocks and Shares?
Shares and stocks are a small part of a company. Once you
own a single share or stock you own a small piece of that company. One share or
stock will give you a very small portion of a company but you are still an
owner of that company.
Stocks and shares are often referred to as the same thing.
But they are not always the same thing.
Stocks, exclusively refer to corporate equities, securities traded
on a stock exchange.
Shares describe a slice of ownership in a company. It has a
more specific meaning to it.
We can only trade, (meaning buy or sale) public companies on
the stock exchange but private companies may
issue stock and have shareholders, but their shares
do not trade on public exchanges and are not issued through an initial
public offering.
What Is a Stock Split?
As a company grows and people keep on buying their stocks, with
the higher demand the share price grows. And at some point each share becomes
so expensive and less affordable to more and more people. That a company may issue a
stock split.
When a stock splits your money total value does not change. If you owned 1 share of a company, and the share value was $1k and it does a 2 for 1 stock split you will then have 2 shares at $500 each.
➡Five years ago you could buy a share of Amazon under $500 and today each share costs over $3,400.
Amazon had a 2:1 split in June 1998, a
3:1 split in January 1999, and a 2:1 split in September
1999.
I have bought and sold shares of Amazon in the past but today at this value it is not very flexible. They might be the next company to announce a stock split.
➡Apple's stock has split four times since the
company went public. The stock split on a 7-for-1 basis on June 9,
2014 and split on a 2-for-1 basis on February 28, 2005, June 21,
2000, and June 16, 1987.
Apple announced a 4-for-1 stock split, which will take effect August 31, Monday 2020.
➡Friday, Aug. 28, Tesla will distribute four
additional shares in its stock dividend a 5-1 stock split.
That happens officially after the stock market closes, so
any trades that occur earlier that day are still governed by the pre-split
stock price.
What Are Fractional Shares?
A fractional share is a part of a share of stock that is less than a full share. It can come from stock splits, dividend reinvestment plans (DRIPs), or other corporate actions.
Some platforms like M1Finance allow you to invest any amount
of money you desire in a stock. That way we don’t need to save up over $3k, for
example, to become partial owners of Amazon. You can invest $13 or $3 if you so
desire.
With this "beer-bug" the economy has changed and some
companies like Amazon that allow you to order their products from the comfort
of your house, delivery companies like UPS and FedEx, and also streaming
companies like Netflix and Disney+ are growing and making businesses.
I have come to the realization that this is not temporary.
Even if the cure comes to us today too many changes that are permanent or long
term have already happened. People now work and study from home. Very few
flights happen. Many businesses already did not make it and will not come back.
As we saw family and friends passing or suffering so much we
got scared and we changed our behavior.
So I want to get a portion of this companies that I once
thought would have their stock values drop to normal once the "beer-bug" went
away. But even if this "beer-bug" goes away, no one will stop ordering items
online, no one will stop having their items delivered to their door or will
stop streaming their Netflix or Disney+.
M1Finance
M1Finance is a great tool to invest in expensive companies
with small or specific amounts of money and help building wealth on this new
planet we live on.
I don’t work for M1Finance and they don’t pay me to say
this. I opened an account and the investing process was easy.
Feel free to use my link here or on the description down below. You
don’t have to use my link but if you do you will get an extra $10 once you open
and fund the account with $100 and I get a $10 bonus as well.
Dividends and Fractional Shares
Some companies pay dividends. Sometimes they have so much
money that they don’t know what to do with it, and sometimes for other reasons
like government and real estate stocks.
But whatever reason they give back a percentage of profits
to their investors.
And if you own a portion of a share you will receive a
portion of that dividend payout.
How Stock Split Works with Fractional Shares?
Now we know that stocks are a portion of a company. And
fractional shares are a portion of a stock.
Once a stock splits what happens to your fractional shares
depends on your brokerage.
Some brokerages will only split full shares, sell fractional
shares, and put the money back into your account.
For M1Finance your fractional shares split like whole shares
do. If you had 4.5 shares before the split, in a 4-1 split, you will now have
18 shares.
👉Drop questions, comments and ideas in the comment section
down below.
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DISCLAIMER: I’m not a financial adviser. I don’t provide legal advice on my videos, posts and content. On this post, Blog-Page and YouTube Channel I just share my experience. The topics and ideas discussed on this blogpost are my opinions and are presented for entertainment purposes only. The information presented should not be construed as financial or legal advice. Always do your own due diligence.
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