Wealthsimple Trade, in the summer of 2021, launched its fractional shares trading feature, which gives you an option to buy an entire share or portion of a full share.
The fractional shares are an opportunity for investors without deep pockets to own a portion of companies we love and companies with a proven record of year over year growth in value.
If you put aside $300 monthly in TFSA, you no longer must wait ten months to be able to invest in Google stock. You are now able to buy your budget right away.
This approach is simple enough to achieve the goal; however, let me be upfront about the elephant in the room, which is purchase price/quantity.
The price you get dealt is the closing price of the day. Stock prices on this feature are not real-time, but you may want to explore, for additional perks, Wealthsimple’s premium subscription to access that real-time quotes.
I’d be sharing four quick facts on trading Wealthsimple fractional shares as well as the common drawbacks encountered by its users so far.
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What are Fractional Shares?
Fractional shares, as the name implies, are buying a portion of a popular ticker on the stock exchange. It is similar to the concept of buying crypto.
For example, if I invest $1,000 in Bitcoin, the number of Bitcoin in my wallet will be 0.0149 Bitcoin (depending on the price of Bitcoin when I wrote this post).
I don’t own a whole coin, but I own a 0.0149 portion of the coin. In the same vein, investing $1,000 in Google through Wealthsimple fractional shares gives me 0.3378 of a Google stock (Alphabet Inc).
This method helps you self-manage a diversification process and conveniently replace your Mutual Funds with an MER management fee.
4 Quick Facts on Wealthsimple Fractional Shares Trading
Buy Shares by Dollar Amount (not units)
The traditional way to purchase shares is to buy several/some units. In which case, it becomes difficult to afford some shares like Amazon at USD 3,500 per share.
When purchasing fractional shares, you enter the dollar amount you want to spend on a stock, and it gives you the fraction of a unit you’d be owning.
Dividend Reinvestment Plan
Like every other broker, on Wealthsimple, you can choose to have your dividend earned to reinvest your funds to ‘buy’ additional holding rather than a cash payout. It is a simple way of maximizing your holding known as a dividend reinvestment plan (DRIP).
DRIPs may have created an unplanned fractional share in your current portfolio (now you understand why you have one already).
On August 31, 2020, Apple did a 4 for 1 stock split; this gives you 4 shares for every 1 unit held before that date, and concurrently, the price of each unit was quartered-down.
The example above, if you had fractional shares then, (not possible as it wasn’t existent) would increase your number of fractional shares and bring down your cost per unit retrospectively. You are not better off nor worse off.
The fractional shares on Wealthsimple are like the process for purchasing mutual funds where your order is fulfilled at the close of the trading day.
Brace yourself for movement of the quantity purchased in fractional shares the same way you would for mutual funds, depending on how volatile the ticker is on the day.
Wealthsimple Trade Fractional Shares: Perks and Drawbacks
Most companies pay a dividend per share. It is often watched for some traders who want to treat dividends received as passive income.
The good news is that your fractional shares are eligible for dividend payout. In principle, the math works as getting $1.31 as a dividend if you owned 1.39 shares and DPS is 90c/share.
Contrariwise, you will not have a voting right with fractional shares as voting rights are tied to a whole unit of shares.
Registered Accounts: TFSA/RESP/RRSP/RRIF
Good news! Wealthsimple can also house your registered accounts as you do with your traditional banks. The better news is that this allows you to have your monthly contribution, depending on your savings strategy, invested in fractional shares
If you put aside $300 monthly in TFSA, you no longer must wait ten months to be able to invest in Google stock
It is noteworthy to put out that you cannot purchase more than ten times the price of the shares on fractional shares you are interested in.
For example, if you buy Fractional shares of Suncor Energy Inc trading at $31.31, the maximum you can purchase will be 10 x 31.31 ($313.10).
In essence, you may purchase 7.5 shares, 1.2 shares, or any other decimated unit not exceeding ten shares.
Popular Stocks and Tickers
The list keeps growing, but here are some stocks you’ve been unable to afford so far but can put in as low as $10 and have a stake today.
On the Canadian TSX
- TD Bank (TD)
- RBC Bank (RY)
- Shopify (SHOP)
- Canadian National Railway co (CNR)
- TC Energy Corporation (TRP)
Down south on the American side (NYSE):
- Google (GOOGL)
- Apple (APPL)
- Tesla (TSLA)
- Microsoft (MSFT)
- Amazon (AMZN)
- Meta Platforms Inc (Facebook) (Ticker: FB)
- Nvidia (NVDA)
- Netflix (NFLX)
For other articles on stock market investing, click Stock Market Archives.