Fractional investing offers a cost-efficient way to build a diversified portfolio. With some discipline and determination, you can create a truly global portfolio.
You want a bigger playing field and want an international portfolio but are not sure if you have the money. A look at the stock prices of tech giants such as Amazon (AMZN-$ 3,209 as of 25/10) or Google (GOOG $1,590 as of 25/10) and it is all too obvious that it is only for the very rich. But is it?
A key part of international investing is that you can create your portfolio as you deem fit, without diluting your objectives.
Fractional share investing helps you achieve just this.
What are fractional shares?
You can now invest in a portion of a full share, without needing to invest even the minimum amount to purchase a full share. For example, you can invest in 1 percent of one share of GOOG for about $15! You can invest small amounts in high-value securities, which may be out of your reach.
You can select from a wide set of investment opportunities and diversify your portfolio even with limited capital.
You can’t invest in fractions of Indian securities (yet). In practice, you can build a more diversified portfolio internationally than you can in India with a small corpus.
Say you want to start building your portfolio for $100 and you want to invest across 10 stocks and ETFs equally. You can invest $10 in each of the names, such as Amazon, Google, Microsoft and Facebook.
You can systematically invest a small amount—say $ 100—across a basket of favourite/preferred securities every month, without needing to worry if you will be able to purchase full shares.
This would be almost impossible in any other scenario as you will need to monitor the price of the individual securities.
Fractional investing offers a cost-efficient way to build a diversified portfolio. With some discipline and determination, you can create a truly global portfolio. Here’s how you can create a global portfolio:
a. Set an objective
Any financial investment calls for a clear objective. Having an objective improves your focus, sharpens your commitment and helps you measure your progress. But these goals must be realistic. Investing $10 each month to save $1M sounds unrealistic.
It’s crucial to find the right balance. Saving $10,000 over two years with an average $100 monthly investing looks more achievable.
b. Be consistent
Don’t wait for cash windfalls like tax refunds or bonuses to invest. Its great to have them when you do. Fractional shares allow you the privilege of dollar-cost averaging, just like investing in a SIP in a mutual fund.
You can always invest a large chunk if and when available but that may not always make up for the lost time if the money doesn’t arrive in time or if you have other expenses.
You can purchase a fractional share of an ETF tracking the entire US stock market's performance, like Vanguard Total Stock Market ETF or the S&P 500 (SPY).
You may choose to gain exposure to certain sectors— not easily available in India — say consumer technology firms, semiconductors, or electric mobility.
Consider what amount of your portfolio should you diversify and systematically start investing in the markets overseas.
d. Know the costs
Investing overseas includes the incidental cost of FX. You must remit money from your bank account. Accessing international investment opportunities is not a challenge anymore.
And with fractional shares, you can be a part of the global growth story even with a limited capital. Whether you invest $10 at a time or $1000, building a balanced portfolio takes time. Thus, set an objective, be disciplined, and keep diversifying to get the most out of your investments.
(Swastik Nigam Founder & CEO, Winvesta)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.