Buying a single full share of the valuable companies listed on the JSE like Naspers (NPN-JSE) or Capitec (CPI-JSE) can cost between R3000 – R5000. Adding a full share of the most valuable US stocks – such as Berkshire Hathaway B shares (BRK.B-NASQ) – to your portfolio can cost north of $500.
For most retail investors, these prices make it too expensive to own a full share. In the past, these prices were prohibitive and kept investors from getting their share of local and global stock markets. The costs of buying and selling shares create additional barriers to entry.
Thankfully, partial share ownership has changed the game for DIY traders and investors.
Partial shares defined
Partial shares are a market innovation that enables investors to own a portion of a share rather than a whole one.
Instead of purchasing a full share, which can be expensive for some high-value stocks, investors can buy a fraction of a share, allowing them to invest with smaller amounts of money – you can invest in some of the world’s most valuable companies via the Clarity, by Investec platform with just R25.
Investors can specify an amount – either South African rands or US dollars on the Clarity app – they want to invest, and the brokerage or trading platform provider will purchase a partial share or shares of the desired stock or exchange-traded fund (ETF) accordingly.
As partial shares don’t trade on the open market, the only way to sell them again is through a brokerage or trading platform.
Technology enabler
The partial ownership concept had been around for a while before it became a reality.
Only after the internet supported the rise of online brokerages and platform providers developed the complex back-end infrastructure to efficiently handle the partial buying, selling, and dividend distribution with seamless efficiency, and at scale, could retail investors benefit from this innovation.
Without this technological backbone, the concept of partial shares would have remained a theoretical ideal.
BuyAndHold.com is widely considered the pioneering partial share investing platform. Launched in 1999, the company’s model allowed investors to buy a specific dollar amount of a stock, regardless of its price, effectively purchasing fractions of shares.
However, it wasn’t until mobile smartphone penetration gave consumers access to online trading apps that widespread adoption and usage accelerated.
Today, trading platforms like Clarity use technology to enable easy access to global and local stock markets via web interfaces and apps.
These platforms eliminate traditional barriers to entry, like working through a brokerage or the large investment minimums needed to access markets directly in the past.
These platforms also offer seamless, low-cost or commission-free trading, allowing retail investors to trade and invest in partial shares in real time.
Democratised investing
The combination of investing apps like Clarity, partial share ownership, and the introduction of low or no minimums has democratised investing by making it accessible to anyone with extra disposable income.
With low or no minimum investment amounts, retail investors can now get exposure to many of the world’s biggest and best-performing blue-chip stocks.
The ability to regularly invest even small amounts in local and global stock markets creates opportunities to generate additional income and build wealth when these shares pay dividends or increase in value over time.
Buying fractions of various stocks also allows investors to spread risk across different companies and sectors, offering diversification benefits that may help limit losses if one particular stock underperforms.
In addition, partial shares allow investors to allocate their full monthly or lump sum discretionary amount without leaving any cash sitting idle in their trading account.
By removing the financial constraints of purchasing whole shares, partial shares empower retail investors to participate in the growth of the companies, sectors and themes they believe in, regardless of how much disposable capital they have, to build a more diversified and resilient investment portfolio.
