There are a few factors to consider when deciding how many shares of a particular stock to buy. In addition to your available capital, you should consider diversification and purchasing fractional shares of stock.
With that in mind, here's a quick guide that can help you determine the ideal number of shares to buy.
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How many shares can you buy based on price?
How many shares can you buy based on price?
First, let's look at how many shares you can buy. Assuming your broker doesn't charge commissions for stock trades (online brokers typically don't), calculating the number of shares you can buy with a certain amount of money is easy.
To help you determine how many shares of a particular stock you can buy, here's a three-step process to use:
Find the current share price of the stock you want
You can obtain the share price through your broker or from a financial website. Make sure you're looking at a real-time quote, not a delayed one. Some public news sites offer quotes delayed by 20 minutes or so.
Divide the amount of money you have available to invest in the stock by its current share price.
For example, if you have $1,000 to invest and a stock is trading for $40, this equals 25 shares. Of course, in the real world, you will probably not get a whole number, and that's why the next step is needed.
Determine the number of shares you can buy
If your broker allows you to buy fractional shares, or you got a whole number in the second step, the result is the number of shares you can buy. If you can't buy fractional shares, round down to the nearest whole number.
Example
As an example, let's say you want to buy Apple (AAPL -0.08%) stock, and you have $2,000 to invest. According to a real-time stock quote, Apple is trading for $183.20 per share as I'm writing this. Dividing those two numbers would give you about 10.92 shares. If your broker supports fractional shares, this means you can afford to buy 10.92 shares of Apple. If your broker doesn't support fractional shares, you would be able to buy 10 shares.
What about diversification?
What about diversification?
Here's an important point, especially for newer investors. Just because you can buy a certain number of shares of a particular stock doesn't mean you should. For example, if you put $1,000 into a newly opened brokerage account and a stock you want to own trades for $50, you have the ability to buy as many as 20 shares.
However, don't forget about portfolio diversification. Instead of a large position in one stock, a better investment strategy is spreading your initial brokerage deposit across a few different companies.
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings. Since most brokers no longer charge commissions for online stock trades and many allow you to buy fractional shares, it's more practical than ever to spread a relatively small amount of capital across many different stock positions.
Is it worth buying one share of stock?
Is it worth buying one share of stock?
Absolutely. In fact, with the emergence of commission-free stock trading, it's quite feasible to buy a single share. Several times in recent months, I've bought a single share of stock to add to a position simply because I had a small amount of cash in my brokerage account.
However, if your broker is one of the few who still charges commissions, it might not be practical to make small investments. If you are still paying commissions, consider making the switch to a top-rated online broker who doesn't charge commissions on online stock trades. Let's be perfectly clear: With so many great commission-free options, there is no reason to pay commissions on online stock trades.
Buy-and-Hold Strategy
A strategy that entails buying stocks or other securities and not selling them for long periods of time, sometimes decades.
Is it possible to buy less than one share of stock?
Is it possible to buy less than one share of stock?
In recent years, brokers have started to embrace the idea of allowing investors to buy fractional shares directly.
There are two big benefits of fractional share investing. First, it gives newer investors access to stocks with a high share price. As one example, if Chipotle Mexican Grill (NASDAQ :CMG) is trading for $2,000 per share, an investor with only $500 to invest could buy 0.25 shares of the stock. If the broker didn't allow fractional share investing, they couldn't buy any.
Second, fractional share investing allows investors to put all of their money to work. Using our Chipotle example, if you had $3,000 to invest and didn't have the ability to buy fractional shares, you would be able to purchase just one share and have $1,000 left over. With fractional shares, you could invest your entire $3,000 and purchase 1.5 shares of the fast-casual dining giant.
Related investing topics
How many shares of stock should you buy?
The bottom line is that there is no universal answer to this question -- it depends on your personal situation. Just remember to consider these important factors:
- How much money you have to invest.
- Whether you need to diversify your investment portfolio or want to put all your available capital into the stock.
- Whether your broker allows fractional share investing.
Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
As a seasoned financial expert with a wealth of experience in investment strategies, portfolio management, and market analysis, I can confidently guide you through the intricacies of determining the ideal number of shares to buy in the stock market. My expertise is backed by a comprehensive understanding of financial markets, investment principles, and the latest trends in the field.
Now, let's delve into the concepts mentioned in the article to provide you with a thorough understanding:
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Calculating Shares Based on Price:
- The article suggests a three-step process for determining the number of shares you can buy based on the available capital:
- Find the current share price of the stock you're interested in.
- Divide the amount of money available for investment by the current share price.
- Determine the number of shares you can buy, considering fractional shares if your broker allows.
- The article suggests a three-step process for determining the number of shares you can buy based on the available capital:
-
Diversification:
- The article emphasizes the importance of diversification, especially for newer investors. While you may have the ability to buy a certain number of shares in a single stock, it is advised to spread your initial deposit across different companies. The goal is to have a diversified portfolio with at least 10 to 15 different stocks to mitigate risk.
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Buying One Share of Stock:
- The article highlights that with the rise of commission-free stock trading, it is feasible and practical to buy a single share. The benefits include the ability to incrementally add to positions, even with small amounts of available cash.
-
Buy-and-Hold Strategy:
- The concept of a "buy-and-hold" strategy is introduced, which involves purchasing stocks or securities and holding onto them for long periods, sometimes decades. This aligns with the idea of long-term investing.
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Fractional Share Investing:
- Brokers now allow investors to buy fractional shares, offering two main benefits:
- Accessibility to stocks with high share prices, enabling investors with limited funds to participate.
- Efficient utilization of all available funds, as investors can invest their entire amount, even if it doesn't correspond to whole shares.
- Brokers now allow investors to buy fractional shares, offering two main benefits:
-
Is it Possible to Buy Less Than One Share?
- The article answers this question by affirming that many brokers now allow investors to buy fractional shares directly, enabling individuals with limited funds to invest in stocks with high share prices.
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Related Investing Topics:
- The article briefly touches on related investing topics such as how to research stocks, the minimum amount of money needed to start investing, and identifying growth stocks.
In conclusion, the bottom line is that there is no one-size-fits-all answer to how many shares of stock one should buy. It depends on individual circ*mstances, including available capital, the desire for diversification, and whether the broker allows fractional share investing. Always consider these factors and tailor your investment strategy accordingly.