Day Trading Now: Stock Too Expensive? Buy a Slice


The cost to build a diversified stock portfolio is often the highest barrier for new investors. The outlay required to buy a basket stocks is more than the dollars available.

Instead of buying a fixed number of shares, what if you could buy a fixed dollar amount of a basket of stocks? Robinhood and SoFi were the first brokers to offer that choice for investors.

It would cost $4,000 to buy one share of the top five stocks in the Nasdaq 100. Seventy-five percent of that simple portfolio would be in one stock — Amazon (AMZN).

Instead, Robinhood offers fractional shares for $1 or more. So, instead of a large overweight in one stock, an investor could buy the same dollar amount in fractional shares for an equal weight portfolio.

An investment of as little as $5 thus can buy equity ownership of the five largest companies in the world.

What made this option practical was the competition among brokers to attract traders. The enticement was lower stock trading commissions.

The $20 commission per trade at low cost brokers years ago kept getting lower until hitting zero in late 2019. Every broker from the established firms such as Schwab to the newest mobile platforms now offer commission-free trading.

The next step is for brokers to pay us to trade. We can only hope.

Schwab and Fidelity have recently joined the stock trading apps Robinhood and SoFi in offering slices of stocks or fractional shares. This provides opportunities for new and experienced investors.

For new investors, the dollar barrier to investing has dropped to $1. For more seasoned investors came the ability to build stock portfolios with weightings significantly different from indexes.

To build a share-based portfolio with 5% invested in Alphabet (GOOG) would require a total investment of $28,000 for each share of Alphabet purchased. To include Amazon at 5% would raise the total investment to $60,000.

Now the investor can choose the allocation to each stock and the total dollar amount to invest without constraints.

Learn by doing

Perhaps the greatest advantage of this new opportunity is for young investors without much money to invest. It gets them in the game.

You can paper trade to build experience before putting your dollars to work. Keep a record of when and what shares you would have bought to gain some confidence.

But it does not provide the influence of emotion. It is easy to say you would have held on through a market slide. It is entirely different to do it with your hard-earned dollars at risk.

It is said that fear and greed drive the market. Neither can be simulated with paper trading.

The downside may be the perception that stock ownership is akin to gambling rather than investing. The ease of use of stock trading apps, coupled with zero commissions and $1 fractional shares may promote day-trading over investing.

In the first half of 2020, SoFi trading volume increased over 300% and 35% of the volume was fractional shares. The trading volume increased far more than the number of accounts, indicating more short-term trading than long-term investing.

A stock trade today is only a couple of clicks away on your phone. That makes it seem like the latest viral mobile game.

The difference is the very real dollars put at risk.

Recommended Articles

FIRE Your Old Financial Life and Retire Early. Here’s How…

A Chicago flight attendant has hit the news for turning her financial life around. At 39, Bianca DiValerio was nearly broke after a divorce and the sale of several failing

Interview: Rates Will Stay Low, Uber ‘to the Moon’

Don't expect the Federal Reserve to even tap on the brakes anytime soon, says Bob Iaccino, editor of the Stock Think Tank. On Thursday, Fed Chairman Jerome threw cold water

3 Crucial Ways to Keep Your Brain Strong Well into Retirement

For people whose whole life has revolved around using their mind, retirement can be a bind. All of those degrees and awards, the presentation notes, the papers, the grand vision

self employed taxes

Help! I’m Self-Employed and My Taxes Are a Mess!

In the not-so-distant past, the word “gig” was used only to describe the work environment for musicians and comedians who would travel from city to city for performances for one

Your Chances of Seeing a Doctor When You Get Sick Are Falling Fast

New studies have emerged that point to a severe shortage of doctors and other vital health workers is on the horizon for the United States. The first report, conducted by the Association

Iaccino: I Took Profits On Bitcoin, but It Has Nowhere to Go But Up

Bitcoin's pull back from recent highs has not dissuaded Stock Think Tank editor Bob Iaccino from owning the cryptocurrency — but he has taken profits. Bitcoin climbed from below $20,000

Facebook Discloses Secret Rules On What Posts Get Blocked — and Why

Ever had a post on Facebook blocked — by Facebook? For the first time, the company is explaining why. The social media giant has now disclosed the once-secret rules on

Iaccino: Buy the Rumors, Sell the Facts On Biden Transition

Bob Iaccino, editor of the Stock Think Tank, says investors should prepare to "buy the rumor and sell the fact" when it comes to plans of the incoming administration of

financial checklist

12 Crucial Money Steps to Take Now for a Better Year Ahead

The beginning of a new year is an ideal time to reset your finances and work towards a more profitable and productive year. Here is a financial checklist with 12

A Simple Strategy to Live Longer by Quitting Work Yet Still ‘Working’

Some see early retirement as the kiss of death, but one study has shown this to be a myth. Retiring early can actually lengthen your life. A 2017 study published in the

deal on new car

Get a Great Deal On a New Car or Truck Using This Tactic

My lease was up on my 2018 vehicle. I was excited to go car shopping. However, what I realized as I ventured out was that the auto industry also has

Renting vs. Buying: What’s Best for Your Retirement?

A white picket fence surrounding a house with 2.4 children, a dog, a cat, a station wagon. This is the American dream. But owning your own home might not be