Amazon (NASDAQ:AMZN) shares closed at $2,442.37 on May 29. With the Bureau of Labor Statistics reporting the median weekly earnings of full-time workers at $957 in the first quarter of 2020, the typical American would need to work more than two weeks just to get enough money to buy a single share.
But the good news is, you no longer need to have over $2,400 if you believe Amazon is a good stock to own and you want to buy in. In fact, you can buy Amazon stock for $5 or less. You can do that thanks to fractional shares.
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How fractional shares let you buy into Amazon with almost no money
With fractional shares, you can buy a small portion of a stock share of any company, including Amazon or other businesses with expensive stock prices. In fact, Fidelity allows you to buy as little as .001 of a share, which means you could own a piece of Amazon if you had just $2.44 to invest.
While investors traditionally had to purchase whole shares, an increasing number of brokers now allow you to do dollar-based investing instead. With dollar-based investing, you specify the amount of money you want to invest in a stock such as Amazon, and you can buy as many shares as your purchasing power allows -- even if you can only buy part of one.
Some brokers, such as Fidelity, allow you to invest with as little as $0.01 as long as youre buying at least .001 of a share. Others require a higher minimum dollar amount but still let you get started with almost no money. Schwab (NYSE:SCHW), for example, will let you buy a portion of a share of any company on the S&P 500 with minimum investments starting at $5.
Brokers that offer these fractional shares typically charge no commissions on trades, either, as it wouldnt make sense to pay a fee to buy such a small amount of stock.
Youll make the same percentage gain as any other investor -- and take the same risks too
While investing a few dollars in Amazon wont get you a full share, youll benefit just as any investor would if the company performs well. In fact, although the dollar value of your gains wont be the same as those with full shares, your percentage gains will be.
But its important to remember that just because fractional shares allow you to invest with very little cash, youre still taking a risk with your money. And even if its just $5 youre putting into the market, you dont want to lose it if you dont have to. That means that before you buy Amazon or any other stock, its important to research the company, assess the leadership team and competitive advantages, and make sure theres good potential for the stock to perform well.
If you put in the work to act as a smart investor, fractional shares open up the door for you to buy shares in any company even if you dont have much money, rather than being limited to high-risk penny stocks. They provide a unique chance to invest in businesses like Amazon if you believe theyll stand the test of time. And they make it possible for you to grow your wealth because of it.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fools board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.>
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