Investing in fractional shares is a cool feature, especially for novice investors. If you use a broker that lets you buy fractional shares, you can put all your money to work instead of saving up to just buy whole shares or ETFs. And that is especially beneficial if you regularly invest modest amounts or start your investment journey when you have less money.
Two of the best brokers overall – Fidelity Investments and Charles Schwab – are also among the best for those investing in fractional shares. But what is better for partial shares?
Charles Schwab vs. Fidelity Investments: Fractional Investing
Charles Schwab’s fractional share program is called Stock Slices, while Fidelity’s is Stocks by the Slice. Creative names, but so far it’s a dead heat. Here’s how they stack up on what’s important.
Purchases and reinvestment of dividends
The best fractional stock brokers offer both the ability to buy fractional shares and ETFs and the ability to reinvest your dividends as fractional shares. Some brokers offer one or the other, but the best offer both – just like Schwab and Fidelity. So when you receive your dividends, you can order that money to be reinvested in more shares, even fractional shares.
As is common with brokers who offer fractional shares, when a company pays a dividend, you receive your equivalent share of the payout for any fractions in your account. If you own half a share of stock, you will receive half a share of the dividend and of course the full dividend for all the shares you own.
Edge: Even
Available effects
The number of securities available in each broker’s program varies significantly, and it is one of the key differentiators between the two programs.
Fidelity has more than 7,000 securities available in its fractional share plan, including not only stocks but also exchange-traded funds (ETFs). So if you want that expensive S&P 500 ETF but don’t have enough coins for a full share, you can buy a partial share at Fidelity. It’s a huge range of securities and probably covers what almost all investors want to own.
In contrast, Schwab offers its program only for the approximately 500 stocks in the S&P 500. These are the most heavily traded stocks on the market and comprise the vast majority of the total dollar volume on the exchanges, so this selection may be sufficient for many investors looking to are looking for large-cap stocks.
Edge: Fidelity
Trading interface
Each broker has a surprisingly different trading interface, but Schwab’s is much easier for multiple order entry.
At Schwab you cannot enter a partial share order on the usual trading ticket or order entry page. Instead, you must go to the special “Schwab Stock Slices” tab to place your order. Once there, you can search for the S&P 500 stock you want or click on it from a list. You can enter all the stocks you want at once and you can choose up to 30 stocks to buy at a time.
Click continue and on the next screen you can enter your total investment amount. Schwab divides this amount evenly over the total number of shares you want to purchase. View the transaction and then place the order. You will soon own partial shares of the selected stocks.
At Fidelity you use the regular trading interface to place an order for partial shares. However, instead of entering the number of shares you want to purchase, you click a tab for the dollar amount you want to invest. For an individual transaction, it is very easy to enter and execute it.
If you want to buy multiple stocks at once, albeit just those on the S&P 500, the Schwab interface lets you quickly enter them, and up to 30 stocks at a time. The downside to this is that if you want to invest different amounts in each stock, you will have to enter separate orders.
If only one of these two top brokers – or Interactive Brokers, another top place for fractional shares – would combine the best of both worlds: a trading interface with multiple securities, virtually all the shares of the market and the ability to invest different amounts as part of the multi-trade order.
Edge: Schwab
Minimal trading
The brokers differ on their minimum trade size for partial shares, but the difference is ultimately modest. Fidelity only requires a $1 minimum for partial shares, while Schwab requires a still-affordable $5 per partial share order. No heavy burden on either broker.
In terms of maximum trade amount, Fidelity has no fractional shares, while Schwab limits its orders to $50,000 per trade. So if you place a trade above that amount, you’ll have to split it into two or more orders – hardly a dealbreaker if the trading commissions are zero.
Edge: Effective even
Order types
When investors place a stock trade, they can choose between a market order or a limit order. With a market order, the transaction is executed at the price applicable at that time. A limit order, on the other hand, allows you to specify what price you want for your trade, and then the broker will only execute the order if you can get that price or better.
Fidelity allows you to enter market and limit orders, allowing you to choose whether to execute your trade now or when it reaches a certain price. The nice thing about limit orders is that you don’t have to keep watching the market while waiting for your price, like with a market order. You can place your limit order and Fidelity will execute the trade if and when it reaches your price.
Schwab, on the other hand, only offers market orders when trading partial shares. While that’s less attractive, it makes less of a difference for the large and liquid stocks in the S&P 500, to which Schwab’s plan is limited. So unless you’re trading large, it probably doesn’t matter much what price you get. What matters is whether you are looking for a specific price for a stock, as you will need to keep checking the market to see if it is time to enter your order.
Edge: Fidelity
In short
Fidelity’s fractional share program is an attractive feature, and it’s one of the reasons why Bankrate named Fidelity the Best Broker for Beginner Investors for 2023. Of course, Bankrate named Charles Schwab its Best Broker Overall for 2023 – so you won’t go wrong either way.
