Buying a single share in high-valued companies like Berkshire Hathaway, Microsoft and Apple is a barrier for lots of retail investors. But this could soon change with the potential inclusion of fractional shares in ISAs.
What are fractional shares?
Fractional shares are exactly what they sound like – fractions of whole shares of a company.
We usually use the analogy of a company’s shares being like a cake. The cake is cut up into slices and each slice is one share. With fractional shares, you can take one of those slices and cut it into even smaller pieces. As the pieces get smaller, so does the size of the share and the cost to ‘buy’ one.
This means if you don’t have £435,000 to buy a whole share of Berkshire Hathaway, you can buy a fraction of it for a lot less.
5 stocks made more accessible with fractional shares
- Berkshire Hathaway Inc – $549,000
- NVR Inc – $6,201
- McDonalds Corp – $282
- Tesla – $236
- Apple Inc – $191
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
What are the benefits for investors?
Being able to buy fractions of shares could give more people the chance to invest in companies that would usually be out of reach.
This could help bring new investors into the market and grow their portfolio by diversifying across a wider range of investments. In the case of Berkshire Hathaway, it can allow investors to not only invest like Warren Buffett, but also invest with him.
It’s still important to remember that fractional shares aren’t the only way to invest in some of the largest names in the market and they won’t be right for everyone. If you want exposure to a large tech company like Apple, an alternative method is via a fund which invests in stocks and comes with the added benefit of diversification.
Why could this be important for the UK stock market?
If fractional shares do bring in more retail investors to the stock market, this could help the UK catch up with the US in terms of retail investor share ownership.
The latest data from the Office of National Statistics (from 2020) shows that individuals' shareholdings was just 12% of the UK stock market, though that is expected to have risen slightly during the pandemic. The UK appears to be lagging behind in terms of retail participation in shares compared to other large economies like the US where the figure is at 37%.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments can rise and fall in value, so you could get back less than you invest.
So, what’s next for holding fractional shares in ISAs?
There’s no confirmed date yet for when you’ll be able to start buying fractional shares in ISAs and we’ll just have to sit tight for more information for now.
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