So what’s all this fuss about stock splits? What does it even mean to split a stock and why does a company do it in the first place? If these are some of the questions you’ve found yourself asking these last few weeks, then you’ve come to the right place.
What’s a stock split?
A stock split occurs when a company takes its existing shares and divides them into multiple shares. For example, in a 2-1 split you might go from owning 10 shares to suddenly owning 20 shares, but the price of each one will have halved. By creating more shares this increases their supply, allowing the company to lower its trading price to a point that investors would feel more comfortable buying them at. But why should they artificially lower the price? Because life is on a budget. If we see a business we like on the stock market, it’s important that we can afford to put the money up and buy a share of it. Investors feel far more comfortable buying 500 shares of a $50 stock, rather than 50 shares of a $500 stock… Kinda makes sense. Right?
Recently, the Securities and Exchange Commission (SEC) has been putting pressure on companies to perform stock splits to bring share prices down to make investing more attractive to retail investors and promote effective saving. Good guys SEC. But a number of companies are pushing back against the movement.
Some companies have elected to start a whole new class of shares, known as Class B shares. These are cheaper alternatives to the normal shares, but they tend to leave investors with less of a vote in important issues. Other companies have even gone the other way entirely, performing fancy reverse stock splits to reduce the number of shares in supply, making each remaining share more expensive! That’s the last thing we need.
As it stands, the S&P 500’s average stock price is well over $700 per share, boosted by wildly expensive shares, such as Warren Buffett’s Berkshire Hathaway Class A which trade at a wild $300,000+ share price. This makes buying shares inaccessible to the man on the street who doesn’t have that sort of spare change lying around…but never fear, there’s a solution!
Solving the problem
It’s called fractional trading and it’s here to save the day. Fractional trading is pretty much exactly what it sounds like. It allows smaller investors access to more expensive stocks with more privilege by allowing them to purchase a smaller portion of one full share. This means that anyone can invest in the top blue-chip stocks like Google or Microsoft at a fraction of their real price!
This puts investing in the hands of anyone and everyone, no matter the size of their bank account. It also allows them to put all of their available cash to work, right down to the last penny, which is sometimes impossible in traditional investing. Now that’s what we call flexibility!
Invstr is here to help
To help you get into the markets, Invstr has linked up with US broker, DriveWealth, to give you access to a mountain of US-listed securities, including: stocks, exchange-traded funds (ETFs), and American depositary receipts (ADRs) with ultra-low commissions. We’ve done the splitting! You can trade fractional shares from as little as $0.99 per trade and full shares from $2.99.
The days of investing being the preserve of the wealthy are dead and gone. Fractional trading has made the markets more accessible than ever, so the age-old excuse of ‘too little money to get started’ is a bunch of hogwash. Get investing, and take control of your financial future now.
