Hip Hip Hooray Fractional Shares Now Enabled in Robinhood

Back in December Robinhood announced that they were introducing Fractional Shares and launching the feature as an early access shortly after making the announcement.  They also claimed that it would roll out to all users early in 2020.  So I added my name to the wait list and patiently waited for my turn to get access to the feature.

Well today was finally the day that Robinhood turned on the feature for my account and I couldn't be happier.  You might be asking why I was so excited to get this feature.  There are a couple of reasons that I wanted this feature, so lets take a look at those reasons.

More options and Flexibility:

How do fractional shares give you more options you might ask?  If you are like me you don't have larges amounts of cash laying around that you can drop into an investment account to get started.  For me I am currently depositing about $100 a month into my Robinhood account until I am able to wipe out my debt.  So if I wanted to buy 1 share of Apple for example I would have to wait like 4 months before I could buy one share at full cost and lets say the current price is around $300 a share, but in 4 months it grows to $350 or $400.  With fractional shares I could buy $100 worth of the stock at the current value and have say .33 shares of Apple.  So as the stock price rises I am getting to take advantage of the price growth and my fractional share is gaining value.  Apple also pays a dividend to it's stock holders every quarter, so by having some of a share you would still be entitled to a piece of the dividend.

Fractional shares makes it easier to diversify your portfolio, because you no longer need to try up large amounts of cash in a single stock and you can buy smaller pieces of multiple stocks.  This gives you a lot more flexibility to make sure that you are not to invested in one thing within your portfolio.

DRIP(Dividend Reinvestment Plan):

This is the part of fractional shares that I am most excited about.  Dividend reinvestment plan allows you to automatically take your paid out dividends and just have them reinvested back in to get more stock in that company.  Without fractional shares all dividend just got credited to your account and you would need to manually reinvest them, but you would still have to wait until you could by whole shares.  Say you got a dividend payment of $1 that's not going to be enough to buy a share of much so you would have to wait or deposit more money.  So lets take a look at what happens with DRIP and why it benefits you.

Say you have 10 shares of Company X valued at $10 a share and they pay a dividend of $0.10 a share on a quarterly basis.  When the company pays out your dividend of $1 it will allow you to buy 1/10th of a share and now you would own 10.1 shares of Company X.  Next time the company pays a dividend you would receive $1.01 and be able to add another .101 and now you would be up to 10.201 shares.  This would continue to compound your dividend payout and your number of shares.  Without fractional shares to get another share of Company X you would have to wait until 10 dividends had been paid out compared to 9 with dividend reinvestment.  You will continue to see full shares quicker and quicker as you continue to reinvest those dividends and it will grow exponentially.

Dividend reinvestment allows your investments to grow without having to do anything and will maximize your returns in the long run.  Having your dividends automatically reinvested will ensure that you are not losing purchasing power by sitting on cash until you can pick up that next full share.  If you are looking to build passive income this is a great way to make sure you are maximizing every dollar to get you more shares that will in turn earn you more dividends.

Once you have Fractional Shares to turn on Dividend Reinvestment, go to the Settings and under Settings look for the investing section and you will see Dividend Reinvestment:

If you click on that setting it will open up the menu to allow you to turn the dividend reinvestment feature on or off as a whole or you can set your dividend reinvestment preference by stock.  

In conclusion Fractional Shares is definitely a feature that you want to have enable within Robinhood if you already have an account, if you don't have an account it's super easy to get an account and when you sign up Robinhood will give you a free stock valued at between $2.50 and $250 to get you started.  So you are interested in signing up and want to also show support for this blog then please use this link when you sign up.

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