So you’ve discovered a firm to invest in. How many shares are you buying?
Key Points
- Spread your investments over several stocks to lessen risk.
- Use available money to acquire exact or fractional shares, depending on the broker.
- This is because commission-free brokers can help you optimize your investment profits.
How Many Shares of Stock Should I Buy?
When it comes to how many shares of a certain company to purchase, there are a few things to consider. You may also want to explore diversification and fractional stock ownership, given your available funds.
That said, here’s a short approach to help you figure out how many shares to purchase—and at what price.
How many shares can you buy based on price?
First of all, let’s see how many shares you can acquire. If your broker doesn’t charge fees for stock transactions (online brokers often don’t), it’s straightforward to figure out how many shares you can purchase for a specific amount of money.
Here’s a three-step approach to assist you in figuringin figuring out how many shares of a certain stock you can buy:
1. Find the current share price of the stock you want
You may get the share price via your broker or a financial website. Make sure you are looking at a real-time quotation, not a delayed one. Some public news sources have quotations trailing 20 minutes or so.
2. Divide the amount of money you have available to invest in the stock by its current share price.
Say you have $1,0001,000 to invest and a stock is trading at $40.40. That’s 25 shares. Of course, in the real world, you will probably not obtain a complete number, which is why the following step is necessary.
3. Determine the number of shares you can buy
If your broker accepts fractional shares, or you get a whole number at the second stage, that is your answer for how many shares you can purchase. If fractional shares are unavailable, round down to the next whole share.
Example:
So let’s imagine you want to acquire shares in a fictitious company called Company ABC, and you have $2,000 to invest. Let’s suppose Company ABC is trading for $268.30 a share. Take those two figures and divide them, and you get around 7.45 shares. If your broker allows fractional shares, then you can afford to acquire 7.45 shares of Company ABC. If your broker doesn’t provide fractional shares, you’d be able to acquire 7 shares.
So let’s imagine you want to acquire shares in a fictitious company called Company ABC, and you have $2,000 to invest. Let’s suppose Company ABC is trading for $268.30 a share. Take those two figures and divide them, and you get around 7.45 shares. If your broker allows fractional shares, then you can afford to acquire 7.45 shares of Company ABC. If your broker doesn’t provide fractional shares, you’d be able to acquire 7 shares.
What about diversification?
That is a significant topic, particularly for rookie investors. Just because you may acquire a specific amount of shares in a given company does not mean you should. Say you plunk $1,000 down to create a brokerage account, and a stock you wish to hold is trading at $50.
You can afford to buy as many as 20 shares
But please remember to diversify your investments. A better investing strategy than throwing a lot of money at one company is to spread your initial brokerage deposit across many firms.
Most experts recommend that if you are going to buy individual stocks, you should eventually aim to have 10 to 15 different equities in your portfolio to adequately diversify your holdings. Most brokers no longer charge fees on internet stock transactions, and many enable you to purchase fractional shares, making it more practical than ever to distribute a very modest amount of cash over several different stock holdings.
Is it worth buying one share of stock?
Definitely. In reality, with the rise of commission-free stock trading, it is possible to buy a single share. I’ve acquired a single share of stock a few times over the last several months just to build a stake, since I had a little cash sitting in my brokerage account.
But if your broker still charges fees, it may not be practical to make tiny transactions. If you’re still paying fees, try switching to a top-rated online broker that doesn’t charge commissions on online stock trading.
Let’s face it: why pay fees on online stock trading when there are so many wonderful commission-free choices?
Would it be possible to buy less than one share of stock?
Recently, brokers have begun to embrace the notion of enabling investors to purchase fractional shares directly.
There are two key advantages when investing in fractional shares. First, it lets younger investors get into companies with high share prices. For example, if the hypothetical Company XYZ is trading at $2,000 a share, an investor with just $500 to invest might buy 0.25 shares. Without the broker’s fractional share investment, they couldn’t acquire any shares.
Second, fractional share investment allows investors to use all their money effectively. Say you had $3,000 to invest in Company XYZ, but you couldn’t buy fractional shares. In such a case, you could afford only one share, leaving you with $1,000. If you acquire fractional shares, you may use your entire $3,000 to buy the stock and end up with 1.5 shares in the corporation.
How many shares of stock should you buy?
Ultimately, there is no one-size-fits-all solution to this topic—it depends on your specific scenario. Just remember to think about these key factors:
- How much money do you have to put in?
- If you need to diversify your investing portfolio, or if you wish to put all of your available funds into the stock market.
- Does your broker provide fractional share investing?
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