Stocks at low prices, there are. But the securities of many large groups are listed at several hundred euros, such as Hermès, LVMH, Christian Dior, Microsoft… So how can you successfully build a diversified portfolio when you only have a few thousand in your pocket? euros? The solution may lie in buying fractional shares. The idea is simple. Can’t afford a stock because it’s too expensive? Well, buy a fraction of that stock!
However, as you cannot buy shares directly, you will have to go through a broker that offers this service, such as Trade Republic, Interactive Brokers, Admiral Markets or Revolut. This service provider will group together all of its clients’ purchase orders for a fraction of a share for the same company, Hermès for example (which has been trading for around 2,000 euros in recent weeks). This will allow him to place a global order and acquire a certain number of securities of this company. These will be placed in a “collective” securities account of which each client is in some way co-owner, in proportion to his investment. When, over time, the client has invested enough in the Hermès group to hold a full share, it will be transferred to his personal securities account. Finally, if the company pays a dividend, each holder of a fraction of a Hermès share receives part of this remuneration, up to the amount of his investment.
Be vigilant
However, you have to be careful before embarking on such an investment. Some brokers, behind the term split shares, will not buy shares but actually acquire speculative derivative products (of the “contracts for difference” or CFD type) which bet on the rise or fall of the share without the to possess. “This kind of operation is not intended for everyone because these are very risky products”, warns Claire Castanet, director of relations with savers at the Autorité des marchés financiers. So read the documentation carefully.
As of May 2021, the stock market policeman also recommended verifying that the platform which offers savings in the form of split shares is indeed authorized to do so in France and to ensure that the investor will indeed own the securities. In addition, there may be differences between the deed of purchase and the deed of sale because some platforms do not resell fractional shares. “Some offers allow you to acquire fractions of shares through a monthly investment program, but these fractions generally cannot be sold on the stock market, specifies Claire Castanet. You will have to wait to hold a share to be able to resell.”
With these precautions in mind, placing part of your savings in split shares remains attractive, especially if you use a programmed investment plan. “By saving a small amount every month, you give yourself the means to diversify your portfolio over the long term, observes Matthias Baccino, head of distribution and markets at the broker Trade Republic. You also avoid the risk of buying at higher your securities since you smooth your average acquisition price over time.”
And if you do not feel ready to select such and such a company, you have a parade, ETFs (exchange-traded funds, listed index funds). By replicating the performance of a stock market index made up of many stocks, they help to dilute the risk.