How to Buy Minimum/Small Amounts of Stock

by Mike Parker, Demand Media
    Some companies offer paper stock certificates as proof of ownership.

    Some companies offer paper stock certificates as proof of ownership.

    When it comes to building wealth, Americans like the stock market. More than half of us own stock, either directly or through our retirement plans, according to a 2011 Gallup poll. That percentage rises to 87 percent among those who make more than $75,000 per year. While the traditional stock transaction involves units of 100 shares, called round lots, there's no rule that says you have to buy that many shares at a time. It is possible to buy a single share, or even a partial share of stock.

    Brokerage Firm

    Most full-service, discount and online brokerage firms allow you to buy less than 100 shares of stock in a single transaction. Brokerage firms traditionally charged an additional fee for odd-lot transactions, but with the advent of electronic trading, a number of firms, like ShareBuilder and E-Trade, offer a majority of their stock purchase transactions for a flat fee. Either way, you will pay more per share for small transactions than you will for a large transaction. For example, if you brokerage firm charges a flat fee of $10 and you buy 100 shares of a $1 stock, your total cost would be $110 or $1.10 per share. If you only bought two shares of a $1 stock, your total cost would be $12.00 or $6.00 per share.

    Direct Purchase Plans

    Some companies allow investors to bypass their brokers entirely and purchase stock through a direct investment plan. These plans typically have a minimum initial purchase, which can be as little as $50 or less. The plan administrator pools the funds from all investors and makes a single stock purchase according to a predetermined timetable. The shares purchased are divided among all the investors on a pro rata basis, which mean you might end up with partial shares of stock. Direct purchase plans typically allow you to have your dividends automatically reinvested in additional shares of company stock.

    Mutual Funds

    One of the primary principles of investing is diversification, or as your grandmother might say, "don't put all your eggs in one basket." It's hard to develop a properly diversified portfolio of stocks when you buy only a few shares at a time. You can obtain both diversification and professional management of your funds by investing in a stock mutual fund instead of an individual stock. Every mutual fund has a specific investment objective, which can range from capital preservation to speculative growth. The initial investment for some mutual funds exceeds $1,000, but there are plenty of funds that you can get into for less than $100. Always request and read the fund's prospectus before investing to make sure the fund's goal matches your own.

    Novelty Stock Purchases

    While most people buy stock as an investment, a single share of stock can also make a great gift, especially if the company has special significance to the person for whom you're buying it. Not only can you have the stock certificate framed as a wonderful accent piece, a single share of stock is enough to provide the owner with access to regular company reports, voting rights and even an invitation to attend the company's annual shareholder's meeting. You can buy single shares through websites such as OneShare.com or GiveAShare.com, though they don't come cheap.

    About the Author

    Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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