Investors without a fortune to invest traditionally found themselves in a difficult position. The problem: Some stocks that many people would like to buy are very expensive. Take Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), for example. The parent company of Google carries a price tag of around $1,500 a share, so those who want to invest in the tech juggernaut might find themselves priced out.
The good news is that the days when you needed a small fortune to buy a few shares of Alphabet are gone. In fact, if you have just a couple of dollars, you can own a small piece of the company whose search engine has become synonymous with searching the web.
How can you buy Alphabet for $2 or less?
Buying into a company with shares that cost four figures for just $2 or less may sound like a fantasy, but it's possible for anyone thanks to an increasing number of brokerages now offering dollar-based investing.
Dollar-based investing is an alternative to the traditional method of purchasing stocks, which involved placing a purchase order to buy a certain number of shares (and often paying a commission to do it). With brokers that allow dollar-based investing, you place an order to invest a certain amount of money in a particular stock (and your order will likely be commission-free). When your order is executed, you'll become the proud owner of however many shares your money can buy -- even if that's just a partial share.
And here's where it becomes possible to buy Alphabet for $2 or less. If you buy just .001 of a share of the tech giant, which is the minimum required purchase with some brokers, you'd spend only about $1.50. Despite your small stake, you'd still earn the same percentage return on your investment if you had $1,500 (or more) to buy a full share.
Since dollar-based investing enables you to buy less than a single share, it's also referred to as buying fractional shares. Of course, every investor who purchases stock buys a fraction of the company's total outstanding shares -- but with dollar-based investing, those who can't afford to buy at least one whole share are no longer relegated to less expensive (and often riskier) alternatives.
Should you buy a small portion of a share of Alphabet stock?
Fractional shares are great for beginning investors and investors with limited funds because they make it possible to purchase shares of established, successful companies rather than being forced to penny stocks or untested companies with low share prices. But for those who have never invested before, there's a danger in suddenly being able to buy companies that are household names if you assume their brand recognition or high share price automatically makes them good investments.
Whether you're considering buying into Alphabet, Amazon, Tesla, or any other business with shares that carry a big price tag, you still need to do the same research you'd do before buying shares of a company that's not quite as time-tested. So before you pull the trigger, make sure to determine if the stock is a good value, if there's potential for growth, and if you'd be happy owning the company's shares for a long time.
After all, even if you're buying Alphabet shares for must a few dollars, you don't want to waste that money unless you have reason to believe your investment will provide a positive return.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
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