Are you ready to dive into the world of investing but find yourself hesitant because of high stock prices? The good news is, you don't always need to buy an entire share to get started! While some brokers enthusiastically promote fractional share trading for direct purchases, it's important to understand E*TRADE's specific offerings in this area.
Important Note: As of the latest information, ETRADE generally does not allow direct purchases of fractional shares of individual stocks. However, they do offer ways to acquire fractional shares through specific investment vehicles and programs, primarily through dividend reinvestment plans (DRIPs) and their automated investment service, Core Portfolios (which invests in ETFs).* This guide will focus on how you can acquire fractional shares on E*TRADE through these avenues.
Understanding Fractional Shares on E*TRADE: The Nuance
Before we jump into the "how-to," let's clarify ETRADE's stance on fractional shares. Unlike some newer brokerage platforms that allow you to buy $50 worth of a $1000 stock directly, ETRADE's primary self-directed trading platform currently doesn't support direct fractional share purchases for individual stocks. This means if a stock trades at $500 per share, you generally need to buy at least one whole share.
However, E*TRADE does facilitate fractional ownership in two key ways:
Dividend Reinvestment Plans (DRIPs): If a stock you own pays dividends, you can often elect to have those dividends automatically reinvested to purchase additional fractional shares of the same stock.
Automated Investing (Core Portfolios): E*TRADE's robo-advisor service, Core Portfolios, invests your money in a diversified portfolio of ETFs. ETFs inherently hold baskets of securities, and when you invest a specific dollar amount, you often end up with fractional shares of those ETFs.
Now, let's explore these methods with a step-by-step guide.
Step 1: Get Your E*TRADE Account Ready (If You Haven't Already!)
First things first, you need an active ETRADE brokerage account. If you're already an ETRADE client, you can skip to Step 2!
Sub-heading: Opening Your E*TRADE Account
Visit the E*TRADE Website: Head over to
us.etrade.com.Click "Open an Account": You'll typically find this prominently displayed on the homepage.
Choose Your Account Type: For most individual investors looking to buy stocks, a "Brokerage Account" is the standard choice. You might also consider an IRA (Individual Retirement Account) if you're saving for retirement.
Complete the Online Application: This will involve providing personal information, such as your name, address, Social Security number, and employment details. You'll also answer questions about your investment experience and financial goals. Be prepared for a quick, straightforward process, usually taking about 10-15 minutes.
Fund Your Account: Once your application is approved, you'll need to deposit money into your account. E*TRADE offers several funding methods, including:
Electronic Funds Transfer (EFT): Link your bank account for easy transfers. This is often the most common method.
Wire Transfer: For faster, larger transfers.
Check Deposit: You can mail in a check.
Transfer an Account: Move an existing brokerage account from another firm.
Remember, your funds need to settle before you can trade.
Sub-heading: Navigating the Platform
Once your account is open and funded, take some time to familiarize yourself with the E*TRADE platform. Whether you use the website or the mobile app, understanding the layout will make your investing journey smoother.
Step 2: Understanding Your Options for Fractional Shares on E*TRADE
As mentioned, direct fractional share purchases of individual stocks aren't typically available on E*TRADE's self-directed platform. Your paths to fractional ownership are primarily through:
Sub-heading: Option 1: Dividend Reinvestment Plans (DRIPs)
A DRIP allows you to automatically reinvest any cash dividends paid by a stock back into more shares, including fractional shares, of the same company. This is a powerful way to compound your returns over time.
Sub-heading: Option 2: Core Portfolios (Automated Investing)
ETRADE's Core Portfolios is a robo-advisor service. When you invest in a Core Portfolio, ETRADE automatically manages a diversified portfolio of exchange-traded funds (ETFs) for you based on your risk tolerance and financial goals. Since ETFs are often priced relatively high, and the service invests a specific dollar amount, you frequently end up owning fractional shares of the underlying ETFs.
Step 3: Implementing Your Fractional Share Strategy
Now let's get into the step-by-step process for each method.
Sub-heading: Method A: Setting Up a Dividend Reinvestment Plan (DRIP)
This method applies once you already own full shares of a dividend-paying stock on E*TRADE.
Log In to Your E*TRADE Account: Access your account through the website or mobile app.
Navigate to Your Holdings/Portfolio: Look for a section that displays your current investments. This might be called "Portfolio," "Holdings," or similar.
Select the Stock for DRIP: Identify the dividend-paying stock for which you want to enable dividend reinvestment.
Find Dividend Settings/Preferences: The exact location might vary, but generally, you'll look for an option related to "Dividends," "Reinvestment," or "Account Preferences" within your portfolio or for that specific security.
Enable Dividend Reinvestment: There will likely be an option to "Reinvest Dividends" or "Enroll in DRIP." Select this option.
Confirm Your Selection: Review the details and confirm that you wish to enroll the chosen stock in the dividend reinvestment program.
What happens next? When the company pays a dividend, instead of receiving cash in your account, ETRADE will use that cash to buy more shares of that same stock for you. If the dividend amount isn't enough to buy a full share, you'll receive a fractional share.* This is a fantastic way to passively increase your ownership and benefit from compounding.
Sub-heading: Method B: Investing Through Core Portfolios
This method is for those who prefer an automated approach and are comfortable with ETFs.
Log In to Your E*TRADE Account: Access your account.
Navigate to Core Portfolios: Look for a section dedicated to "Core Portfolios," "Automated Investing," or "Robo-Advisor."
Start the Onboarding Process: You'll typically be guided through a series of questions to determine your financial goals, risk tolerance, and time horizon. Be honest and thorough in your answers, as this helps ETRADE create a suitable portfolio for you.*
Review Your Recommended Portfolio: Based on your answers, E*TRADE will propose a diversified portfolio of ETFs. This portfolio will be tailored to your risk profile.
Fund Your Core Portfolios Account: You'll need to transfer funds specifically to your Core Portfolios account. There's usually a minimum initial investment (often $500). You can also set up recurring deposits.
Confirm and Invest: Once funded, E*TRADE will automatically invest your money into the chosen ETFs, including fractional shares to fully utilize your investment amount.
Ongoing Management: E*TRADE will then periodically rebalance your portfolio to maintain its target asset allocation, automatically buying and selling fractional shares as needed.
Step 4: Monitoring Your Partial Stock Holdings
Even though you're buying fractions, these are real investments!
Sub-heading: Checking Your Portfolio
Regularly Log In: Make it a habit to log into your E*TRADE account.
View Your Portfolio/Holdings: You'll see the number of shares you own, including any fractional components, and their current market value.
Track Performance: E*TRADE provides tools to track the performance of your investments.
Sub-heading: Understanding Statements
Your monthly or quarterly statements from E*TRADE will detail all your transactions, including any fractional share purchases through DRIPs or Core Portfolios. Review these statements carefully to stay informed about your investments.
Step 5: Adjusting Your Strategy (If Needed)
Your financial goals and market conditions can change, so it's good to know how to adjust.
Sub-heading: Modifying DRIPs
You can usually disable or re-enable DRIPs for specific stocks at any time through the same dividend settings where you initially enabled them.
Consider disabling a DRIP if you prefer to receive cash dividends, or if you want to direct your dividend income to other investments.
Sub-heading: Adjusting Core Portfolios
For Core Portfolios, if your risk tolerance or financial goals change, you can often update your profile within the Core Portfolios section. This might lead to a rebalancing of your portfolio.
You can also add more funds or withdraw funds from your Core Portfolios account as needed. Keep in mind that selling shares, including fractional ones, will result in taxable events if held in a taxable brokerage account.
Conclusion: Smart Investing, One Fraction at a Time
While E*TRADE's direct fractional share purchasing for individual stocks may not be as robust as some other platforms, its robust DRIP program and automated Core Portfolios service still provide excellent avenues for acquiring fractional shares and building a diversified portfolio. By understanding these options, you can intelligently invest your capital, regardless of the share price, and work towards your financial objectives. Happy investing!
Frequently Asked Questions (FAQs)
How to directly buy fractional shares on E*TRADE?
As of current information, ETRADE's self-directed brokerage platform does not support direct purchases of fractional shares of individual stocks. You must generally buy whole shares.*
How to enable dividend reinvestment for fractional shares on E*TRADE?
Log in to your E*TRADE account, navigate to your portfolio, select the dividend-paying stock, and look for "Dividend Reinvestment" or "DRIP" settings to enable it.
How to use E*TRADE's Core Portfolios to get fractional shares?
Access the "Core Portfolios" section, complete the risk assessment, fund your account, and E*TRADE will automatically invest in a diversified portfolio of ETFs, often resulting in fractional ETF shares.
How to know which stocks on E*TRADE pay dividends?
You can use E*TRADE's research tools and stock screeners to filter for dividend-paying stocks, or check the individual stock's quote page for dividend history.
How to check if my existing stocks are enrolled in DRIP on E*TRADE?
Go to your portfolio or holdings section, and for each dividend-paying stock, check its dividend settings or preferences.
How to sell fractional shares on E*TRADE?
Fractional shares acquired through DRIPs or Core Portfolios can be sold like whole shares through your E*TRADE brokerage account. The platform will execute the sale of your entire position, including any fractional component.
How to transfer fractional shares to or from E*TRADE?
Generally, fractional shares cannot be transferred in-kind between brokerages. You would typically need to sell the fractional shares and transfer the cash proceeds.
How to invest small amounts on E*TRADE if I can't buy fractional shares directly?
Consider investing in ETFs or mutual funds through ETRADE, as these often allow for dollar-amount investments that can result in fractional shares. ETRADE's Core Portfolios is an excellent option for this.
How to find out if a specific ETF offers fractional shares through Core Portfolios on E*TRADE?
When you set up your Core Portfolio, E*TRADE automatically handles the fractional share allocation for the ETFs within your chosen portfolio based on the dollar amount you invest.
How to learn more about investing basics on E*TRADE?
E*TRADE offers a comprehensive "Knowledge Center" with articles, videos, and educational resources on various investing topics, from basics to advanced strategies.