Fractional Shares - The Definitive New Zealand Guide

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Updated 13 September 2021

Find out about fractional shares and what kind of benefits this can add to your investment portfolio, and which investment platforms offer these shares with our guide to fractional shares.
 
Why should I read this guide?
Investing is essential to growing your wealth, but many of you may be feeling stuck on where to start. We've put this guide together to help you make better decisions when choosing your next fractional shares platform. This guide covers fractional shares, the pros and cons of fractional shares vs. full shares, and our pick of investment platforms that offer fractional shares.
 
"Don't put all your eggs in one basket." Buying shares isn’t what it used to be. Over the last ten years, fractional shares have risen in popularity among young investors. Gone are the days of having to start with $1000, $30 fee to buy or sell? No thanks, only have $10, but the share costs $100 - Goodbye. Fractional trading platforms offer versatility when purchasing shares, making these all a forgettable pastime. Fractional shares allow you to spread your eggs in as many baskets as you want without purchasing the whole share.
 
Know This First: What are fractional shares?

• If you were to purchase shares in a company at $10 per share and a balance of $100, You'd be able to buy ten shares. If the share price were $10.80, you could buy 9.2 shares.
  
• Fractional shares are a portion of a total share in a company's stock.
  
• When buying fractional shares, your shares are held in a custodial account or ‘street name’. The custodial account or ‘street name’ convention has made it possible to offer lower fees however are still owned by you.
  
• Fractional shares offer great ways of building diversified portfolios minus the high-value cost.

 
Must-Know Facts

• Keep in mind that you're not limited to buying ordinary shares. In addition, you're able to grab a slice of exchange-traded funds (ETFs). Fractional shares will bring your egg basket further diversification.
• Fractional shares act the same as regular shares, providing both dividends and voting rights.
• During periods of wide price fluctuations, there may be delays in executing your order. Therefore, placing an order during a volatile market can sometimes yield significant differences between the quote you've received when you placed the order and the execution price you obtained.
• Shareholders can receive fractional shares through stock splits, mergers or acquisitions and dividend reinvestment plans.
  

Pros

• Affordable: To purchase a fraction of a share means you can invest what you have, usually with no minimum investment. On the other hand, full shares require you to buy a unit in full, accompanied by high fees making it unprofitable to buy smaller quantities.
• Dollar-Cost Averaging: With little to no fees, fractional shares allow those with lower incomes to benefit from dollar-cost averaging. However, dollar-cost averaging with Full shares may not be as viable due to higher fees per trade.
• Diversification: Low-income investors benefit because fractional shares make it affordable to diversify across various investments, leaving their eggs in multiple baskets. Full shares make it harder to achieve cheap diversification due to the high fees and purchase of the entire share.

 
Cons

• The Range of Stocks and ETFs are Limited: Fractional investment platforms may not provide every stock and ETF you're after. This selection will vary from platform to platform. Full share platforms will be able to provide access to all companies that trade on its exchange.
• Trade Execution Delays: Some investment platforms brokers may not execute your market order until there are enough orders to make a significant wholesale purchase. You may find the quoted price and the completed price may differ. Full shares will allow you to buy and sell the share without this delay in pricing.
• May not suit advanced traders: Fractional share providers offer many options for new investors looking to get their feet wet. In addition, most fractional share providers offer international market and shares trading. The difference is you won't find any advanced trading instruments (currently) such as options or futures that you could with Full share providers.

Sharesies

• Sharesies background: A Kiwi owned investment platform with operations in Wellington. Sharesies offers an excellent investment stepping stone. With investors flocking in, Sharesies is about  “giving everyone the same opportunity to develop their wealth” As a result, Sharesies offers the most access to exchanges for its users. As a result, Sharesies is an excellent choice for new investors with no minimum investment.
• What you can invest in: Companies, Exchange-traded funds (ETFs), Managed funds
• Order types: Market orders, Limit orders, Auto-invest.
• Minimum investment: No minimum.
• Kids accounts: Yes
• Foreign Exchange fee: 0.4% currency exchange fee.
• Trading Fees: (0.5%) Up to $3,000 + (0.1%) For amounts over $3,000 = Total fee per order.
• What share markets do they offer: New Zealand Stock Exchange (NZX), Australian Securities Exchange (ASX), Nasdaq, New York Stock Exchange (NYSE), and Chicago Board Options Exchange (CBOE)
• Platform: Web
• What we like about Sharesies
  • Sharesies offers the most options for available exchanges; you can invest in more than 7800 options.
  • Sharesies simplifies the idea of investing with lots of entry-level information for new investors.
  • Their podcast ‘Lunch Money’ complements its investment platform, chatting with Kiwi and Aussie executives about critical financial topics.

 
Important to note - Prices and processing times:

• Exchange-traded investments - The price you'll see for exchange-traded investments is shown with a delay of at least 20 minutes while the market is open. Meaning in most cases, the price will differ from your buy or sell price. The orders may be fulfilled small bits at a time with 30 days before it is either partially completed or fully cancelled and funds returned to your wallet.
• Managed funds - Managed funds will always show a different price than the sell or buy price. The price shown is the latest mid-price the fund provider has given and is always at least one day old. The mid-price includes adjustments by the transaction fee for the fund and is how we reach the buy and sell price. The fund provider will also determine its costs.

Hatch

• Hatch’s background: Hatch is Kiwi Wealth’s digital financial platform, a Kiwi owned investment platform with operations in Wellington. Hatch aims to simplify investment for New Zealanders. Hatch offers shares exclusively in US markets with over 2,900 companies and 900+ exchange-traded funds (ETFs) through its broker DriveWealth. “Hatch provides tools, knowledge and investment opportunities”, covering loads of foundational investing topics, profiles and news, “so you can put your money to work.”

 

• What you can invest in: Companies, Exchange-traded funds (ETFs), Managed funds, American Depositary Receipts (ADR)
• Order types: Market orders, Limit orders, Stop-buy orders, Stop-loss orders,  Auto-invest.
• Minimum investment: No minimum.
• Kids accounts: Yes
• Foreign Exchange fee: 0.5% currency exchange fee.
• Trading Fees: 0 - 300 shares: $3 USD flat fee. 301+ shares: 1c USD a share, e.g. 301 shares is $3.01. Kids accounts: Brokerage 50c USD
• What share markets do they offer: Nasdaq and the New York Stock Exchange (NYSE)
• Platform: Web
• What we like about Hatch
  • Hatch has a straightforward, easy-to-use site that makes it simple to get your head around if you’re an investment platform newbie.
  • Hatch handles all the taxes for its US shares and helps you with your NZ obligations.
  • It’s possible to filter Investments in a simple setup with investment types easy to find and sorted into, ADR’s, IPO’s, Companies, ETF’s. For example, suppose you’re interested in investing in companies that pay dividends. In that case, Hatch even provides two options to “Non-dividend payers and Dividend payers.  
  • Hatch webinars cover different economic issues every six weeks called “Wine & Wealth”, providing easily digestible wealth information.
    

Stake

• In a nutshell: Stake believes that opportunities should not be determined by where you stay. Stake is open to Kiwis as an Australian investment platform and offers access to the Nasdaq and the New York Stock Exchange (NYSE). In addition, Stake provides the ability to trade 6,000+ US stocks and ETFs in US markets through its partner DriveWealth. They offer $0 commission and no monthly fees on their standard Stake account and even a free share on sign-up.
• What you can invest in: Companies, Exchange-traded funds (ETFs), Managed funds, American Depositary Receipts (ADR), Inverse & Leveraged ETFs.
• Order types: Market orders, Limit orders, Stop-buy orders and, Soon to be added: Margin Trading, Short selling, Options
• Minimum investment: $50 NZD deposit, $10 USD minimum for trades.
• Foreign Exchange fee: $0 Per trade 1% On deposit and withdrawal only
• Trading Fees: $0 Brokerage fees $0 FX Fees per trade
• What share markets do they offer: Nasdaq and the New York Stock Exchange (NYSE)
• Platform: Web, IOS, Android
• What we like about Stake:
  • Stake’s $0 Brokerage fees $0 FX or no monthly fees remains unmatched on our list of providers.
  • They are boasting a sleek and stylish app. Stake keeps its design UI and UX simplistic and easy to navigate.
  • The ability to execute up to 3-day trades in a rolling five day trade period (any more, you get marked as a pattern day trader and potentially restricted from day trades for up to 90 days). Holding a balance of USD 25k makes you exempt from this rule.
  • Stake offers an excellent sign-up bonus where you get to spin the wheel for a free share from GoPro, Dropbox or even Nike. Sign-ups using your referral lets you turn again, both receiving a free share.

 
Stake’s premium membership “Stake Black” offers its users access to much more advanced trading features:

• Access funds from sales before they settle
• Buy & sell ratings from Wall St analysts
• See price targets on stocks from professionals
• View full company financials and data

 
Stake also provides lots of value to its users with its free content
Offering lots of extra online content and information to its users, Stake covers various current financial topics on its blog.

• The Wrap: Brings together the week's news in the financial market.
• Stake Updates: IPO’s, Changes to the Stake app.
• What I'm Trading: Interviews their users and how they invest.
• Under the Spotlight: Takes a closer look at the markets most famous companies.
• Stake Academy: Helps bring newbies up to speed with learning the basics of investing in stocks.

 
Important to note - Processing times:
The standard settlement time of sell trades on the US exchange is T+2 days, where T is the transaction date, and + 2 refers to 2 business days from the transaction date. In addition, Stake Black provides you with instant buying power allowing reinvestment of funds once your sale’s executed.

Sharesies: All client investments and money are held within bare trust under Sharesies custodian company Sharesies Limited. All customer funds are held under a client trust bank account.
 
Hatch and Stake: Both platforms use Drivewealth as their US broker. If Drivewealth goes through insolvency. Your shares are covered under the Securities Investor Protection Corporation (SIPC). This protects against the loss of cash and shares held by a customer at a financially troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000 USD, which includes a $250,000 USD limit for cash.

With the fractional investment platforms in this list, you’ll find they don’t offer dividend reinvestment plans. However, you’ll be able to participate in DRP with full share platforms.

If you buy shares intending to sell for a profit, Inland Revenue (IRD) may consider you a share dealer or trader. It’s IRD’s responsibility to prove that you’re a trader if you are.
 
The IRD generally looks at these behaviours as indicators someone may be a trader:

• Regularly buying and selling shares,
• Significant amounts invested in shares, especially when a portion is borrowed
• Buying highly volatile shares to flip at a profit (e.g., GME or AMC)
  

The providers in our list complete the W8-BEN forms the US Internal Revenue Service (IRS) require to ensure the correct deductions for withholding tax is made on your behalf.