The Growing Popularity of Dollar Based Investing

December 24, 2019 · 7 minute read

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The Growing Popularity of Dollar Based Investing

Have you ever wondered if you could purchase a fraction of a stock?

With companies like Amazon trading at nearly $2,000 per share , not everyone can afford to purchase even one entire share of stock. These high stock prices have traditionally been a barrier to entry for new investors. Fifty-six percent of millennials feel that they don’t have enough money to start investing.

If you’re new to investing in the stock market, you may feel as though you need thousands of dollars just to get started. This used to be the case, but new investment tools have made it possible for anyone to start buying stocks. The modern view of investing is that anyone should be able to have access to flexible financial tools.

With dollar-based investing, you can start with less than $10 and start growing your portfolio. How is this possible? Through the purchase of fractions of shares.

The fractional method of investing is growing in popularity and comes with a number of benefits. Just as when you’re saving up money for a home, your child’s education, or your retirement, getting started investing early is key.

Recommended: What Are Fractional Shares?

What Is Dollar-Based Investing?

A fractional share is a portion of one full share of stock equity. Dollar-based, or fractional share investing, is the method of buying these partial shares of stocks. Fractional investments allow you to invest based on a dollar value rather than a share value.

Historically, when a share price got too expensive for most people to afford, the company would split the shares. So if you owned one share worth $1,000, for example, the company might split it into 10 shares each worth $100. You would then own 10 shares instead of one.

Recently, stock splitting has become less common, partly due to the rise of dollar-based investing. Higher stock prices are fine for larger investors, but they make it difficult for small investors to purchase stocks in many popular companies.

The concept of fractional shares is not entirely new. Dividend Reinvestment Plans and exchange-traded funds (ETFs) work similarly. One benefit of dollar-based buys is that they allow direct investing in companies of your choosing, whereas an ETF is a pass-through investment managed by a third party.

There are two ways to purchase fractional shares, depending on the brokerage firm you work with. Brokerage firms that offer fractional shares purchase full shares of stocks then allocate portions of them to the fractional buyers. Some brokerage firms offer fractional shares of single stocks, while others allow you to put your money into a portfolio of stocks all at once.

For example, you might invest in a portfolio of tech stocks or green energy stocks, or conservative stocks that pay regular dividends. The method you choose depends on your personal goals and investment requirements.

Not all brokerage firms offer fractional investing, so you’ll need to find the one that works best for you. One thing you could keep an eye out for as you decide which brokerage firm to work with is the fees they charge for dollar-based buys.

A fee may not be significant when buying large quantities of stock infrequently, but it can add up quickly when applied to many small transactions.

Also, brokerage firms often charge each time you make a transaction, and you may make more transactions if you’re working with smaller amounts of money. Some big box retailers also sell fractional shares in the form of gift cards.

Also important to keep in mind: Just because a company has an expensive share price doesn’t necessarily mean it’s a better investment or a more successful company. There are various factors to consider when deciding whether to invest in a stock.

Some Benefits of Dollar-Based Investing

There are many reasons fractional share investing is becoming more popular and why it may be a good option. As with any type of investing, knowledge is power. Make sure you research the company or portfolio you buy into.
You might want to ensure that you never invest more money each month than you need to pay for your day-to-day living expenses. Now, onto a few of the benefits of dollar-based investing.

Portfolio Diversification

By investing small amounts of money into multiple stocks, you can spread out your risk over a variety of investments. Diversification is one of the keys to building a strong long-term portfolio.

Using dollar-based buys, even with $100 you could purchase portions of five, 10, or even 20 different stocks. Even if you’re starting out with thousands of dollars to invest, you may decide to purchase portions of stocks in order to diversify.

Lower Investments

With many stock prices rising too high to buy entire shares, (for example, Berkshire Hathaway is currently over $300,000 per share,) investors are seeking ways to get involved in the stock market at lower starting prices.

Fractional investing allows you to get started with just a few dollars with some brokerage firms, and to purchase smaller amounts of multiple stocks rather than putting all of your money into one stock.

It may seem like you can’t do much with a small investment, but you actually could be losing money in inflation-adjusted terms if you save it in cash and don’t invest it. It’s important to know the risks and potential return on investment (ROI) of your investments, but investing your cash just might be a better idea than stashing it under your mattress.

Increased Flexibility

With modern investing comes modern tools. Many of the brokerage firms offering fractional shares come with phone apps for quick and easy buying and selling, like SoFi Invest®.

These apps can allow you to purchase portfolios of stocks within a certain industry or risk tolerance.

Automated Investing

Using investment apps like SoFi Invest, you could set up an automated investing profile to fit your parameters.

Whether you want to invest a small amount each month or invest one time into a portfolio of different stocks, with dollar-based investing, you have many options.

You can choose to invest in pre-selected groups of stocks organized by industry or risk level. Automated investing allows you to set up your account once and potentially grow your portfolio steadily over time, without the time and energy of checking and adjusting it regularly.

Potential Downsides to Dollar-Based Investing

As you can see, there is a lot of potential upside to fractional shares investing. However, there are potential downsides you might want to keep in mind.

Voting in Company Elections

If you own less than one share of a stock, you typically won’t be able to vote in company elections.

Ability to Receive Dividends

If a company pays dividends and depending on how much of a share you own and what dividend that stock pays, you may not receive any dividends at all. For example, if you own 10% of a share, and that stock pays a 1 cent dividend, you won’t receive anything.


Some investment apps and brokerage firms may not allow you to transfer your fractional shares. If you begin investing with a different firm or choose to close your account, you may need to sell your fractional shares within the same platform you purchased them through.

Trading Fees

Some brokerage firms that allow dollar-based investing charge additional fees for the service. Choosing a platform such as SoFi Invest, which charges zero transaction fees, could help keep a few more dollars in your investing account.

Dollar-Based Investing With Fractional Trading

There are many attractive benefits to dollar-based investing. If you’re interested in getting started with fractional shares investing, SoFi allows you to start with as little as $5. Using SoFi’s active investing tools, you can purchase portions of shares of your favorite companies.

There are zero SoFi fees for trading stocks on SoFi’s platform, and no account minimums. You can also create a personal watchlist of stocks you’re trading or interested in. As a member of SoFi Invest, you’ll receive real-time investing news and tips to help improve your investor knowledge.

By starting to make dollar-based buys with SoFi’s Fractional Shares, you could experience the many benefits of being a fractional investor. You could build a flexible portfolio that’s easily trackable and tailored to your goals. The same diversification that large investors achieve could be available to you at a fraction of the cost.

Get started with SoFi Invest today and see what your dollar-based investing can buy.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


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