In this segment from the Rule Breaker Investing podcast, David Gardner dips into the mailbag and discovers a listener who signed up for the Robinhood virtual brokerage, which allows investors to make trades for free.
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It's a very low barrier to entry way to get involved in stocks, but it's not one that lets you buy fractional shares. Gardner doesn't recall saying it was, but he does have an alternative suggestion for a service that does allow you to: Sharebuilder.
A full transcript follows the video.
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This video was recorded on Aug. 30, 2017.
David Gardner: Mailbag Item No. 2. This one comes from [Vikas Patel]. "Hi, David. First of all, I love your RBI podcasts. I've heard multiple times you mentioned we could trade fractional stocks using Robinhood. I recently opened an account with Robinhood and found out they do not offer such service. Wanted to find out if you know such service existed at or outside of Robinhood. Thank you, [Vikas Patel]."
Well, first of all, Vikas, I'm sorry if that is the case. Indeed, I let my fingers do the googling and discovered it is true that Robinhood -- the free stock trading app that many, especially younger people it seems to me, can use off their mobile phone -- does not allow you to buy partial shares.
Now for a lot of people new to the stock market, they might wonder, "Well, why would I even want to buy a partial share, like half a share of Apple?"
Well, if a stock is at, let's say, $438 a share today trading on the stock market and you only had about $200, but you wanted to buy that stock, it's awfully nice, isn't it, to be able to buy a partial share.
Now it sounds like Robinhood does not do that. I may have mentioned them in the past. I don't remember pounding the table for them doing so, but I'm taking you at your word because I will let you know that there is at least one type of account I know that you can open and trade fractional shares, and that is ShareBuilder.
Now ShareBuilder is a past Motley Fool partner in [the] discount broker area of our website, but it was acquired by Capital One. So if you go to the Capital One site, or if you're interested in opening up an account, you could take a look at their ShareBuilder program where you'll see they're still doing that same thing.
You have the opportunity to state ahead of time that you want to invest X dollars. It needs to be on a regular schedule based on what I'm seeing from their website, so maybe you'll say, "I'm going to be buying on the 1st of every month and I'll be investing $100." That sort of thing.
So you're on a regular schedule, but then you can say the stock that you want to buy, and if that stock is trading at $438 a share and you have your $100; well, really quick math using my Mac, you will get 0.2283105 shares of Apple when you make that purchase and that's the way you can build up shareholdings using smaller amounts of money in stocks that just happen to have larger share prices.
So, [Vikas], while it sounds like Robinhood might not do that, maybe you'll still enjoy that free trading, although don't trade too often; but for those who are interested in partial shares, that's at least one partial answer. I'm sure that there are other services and if anybody wants to write in or let us know at Rule Breaker Investing, maybe I'll mention it in next month's Mailbag.
David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.