When the Robinhood crowd buys for the long haul
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Fractional shares are an easy way for small investors to buy a piece of Tesla or Apple, but many are using it as a way to slowly accumulate exchange-traded funds that give them a small piece of the broader market.
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Cari Swanger, a 33-year-old pharmacist living in Seattle, opened her first SoFi Invest account this summer after she finished paying off her student loans. Ms. Swanger chose fractional investing and ETFs because they allowed her to diversify and minimize her risk.
"One share of Amazon or Tesla is a lot of money these days," she said. "I made myself a promise: I'm not going to put all my money on one stock."
Ms. Swanger's first investment was $50 in the SoFi Select 500 ETF, which tracks the S&P 500. She has since invested in the SoFi Weekly Income ETF, which invests in corporate bonds, and in the SoFi 50 ETF, an ETF of the 50 most popular U.S. stocks on SoFi.
Fractional shares are an easy way for small investors to buy a piece of Tesla or Apple, but many are using it as a way to slowly accumulate exchange-traded funds that give them a small piece of the broader market. (Robinhood/istock)
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Investing in fractions of ETF shares works just like buying other fractional shares: Investors choose a dollar amount they would like to invest in the ETF, which a brokerage already has purchased, and then the fraction they hold is whatever portion of the share their dollar contribution is worth.
Ryan Lee, a 20-year-old business student at the University of New Hampshire, uses the investment app Stash to buy fractional shares of high-profile ETFs.
"I can diversify so easily with just $5 at a time," he said. "By using ETFs, I had diversification."
Mr. Lee said he bought QQQ and the iShares Russell 2000 ETF at the beginning of his investment journey in 2018. They appealed to him because they increased his exposure to new parts of the market — QQQ to tech, the iShares Russell 2000 to track small-cap stocks — and also diversified his investment portfolio.