When choosing how many shares of a specific stock to purchase, there are a few things to take into account. You should think about diversification and whether you can purchase fractional shares of stock in addition to the amount of capital you have at your disposal.
In light of the foregoing, the following fast guidance can assist you in selecting the optimal quantity of shares to purchase.
Based on price, how many shares can you purchase?
Let’s start by taking a look at your share purchase options. Calculating the number of shares you can purchase with a given amount of money is simple, provided your broker doesn’t charge commissions for stock trades (the majority of well-known online brokers don’t).
The three steps are as follows:
- Find the desired stock’s current share price. You can get a quote from a financial website or your broker.
- Verify that the quote you are viewing is current and not delayed.
- Subtract the current share price from the total amount of money you have available to invest in the stock.
The amount of shares you can buy depends on whether your broker permits fractional share purchases. Round down to the nearest whole number if you can only purchase entire shares (which is the most typical scenario).
Let’s use an example where I want to invest $2,000 in Apple’s stock. As I’m writing this, a real-time stock quote shows that Apple is currently trading for $160 per share. These two numbers are divided to give me around 12.5 shares. Because fractional shares are currently not supported by my broker, I am able to purchase twelve shares of Apple.
What about a change in direction?
Here’s something crucial, especially for novice investors. It doesn’t necessarily make sense to purchase a certain amount of shares of a particular stock just because you can. You can purchase up to 20 shares, for instance, if you deposit $1,000 into a recently formed brokerage account and a stock you want to own is trading for $50.
Diversification of your portfolio should not be overlooked, though. Spreading your initial brokerage deposit across a few different firms could be a better investment strategy than holding sizable ownership in just one stock.
The majority of experts advise beginning investors that in order to adequately diversify their holdings, they should ultimately attempt to have at least 10 to 15 different companies in their portfolio. Spreading a relatively small amount of capital across numerous different stock positions is now more feasible than ever because the majority of brokers no longer charge commissions for online stock trades.
Is purchasing one share of stock worthwhile?
Absolutely. In truth, it’s now possible to purchase a single share thanks to the development of commission-free stock trading. I’ve added a single share of stock to a position several times in recent months merely because I had a tiny amount of cash in my brokerage account.
Making tiny investments may not be feasible if your broker is one of the few that still levies commissions. For instance, if your broker charges $4.99 in trading commissions, you would have to fork up more than 17% of the investment’s value to purchase one share of General Motors’ stock, which is currently trading at $29 per share. Consider switching to a reputable online broker who has embraced the zero-commission movement if you are still paying commissions.
Can I purchase fewer than one share of stock?
Brokers have recently begun to accept the notion of enabling investors to directly purchase fractional shares.
Buying fractional shares offers two key advantages. First off, it makes expensive stock options available to novice investors. For instance, if shares of Amazon are selling for $2,500 each, a shareholder with $500 to invest could purchase 0.2 shares of the company.
Second, investing in fractional shares enables investors to use their entire capital. Using our Amazon example, you could buy just one share with $1,500 left over if you had $4,000 to invest and were unable to buy fractional shares. You could invest your entire $4,000 and buy 1.6 shares of the e-commerce juggernaut using fractional shares.
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