In an era where financial literacy is becoming increasingly vital, young people are presented with a unique opportunity to secure their financial futures through investing. One of the most accessible and beneficial methods for budding investors is the purchase of partial or fractional shares.
This innovative approach allows individuals to invest in high-value stocks without needing substantial capital, making it an ideal strategy for youths looking to build a nest egg.
Fractional shares are portions of a whole share, allowing investors to buy a fraction of a stock rather than a full unit. For instance, if a single share of a company costs $1,000, an investor can purchase a fractional share for as little as $10.
According to Steven Fox, a wealth advisor, with Border City Financial in Windsor, Ontario, partial share buying exists in mutual funds.
“If you buy 500 securities with an investment of $1,000 you would own part shares of everything in that fund.”
The age-old adage, “the earlier, the better,” rings particularly true in the world of investing. According to a report by the National Bureau of Economic Research, individuals who start investing in their 20s can accumulate nearly five times more wealth by retirement compared to those who begin in their 30s.
This is largely due to the power of compound interest, where the returns on investments generate their own returns over time. By purchasing fractional shares, investors can start small and gradually increase their investments as their financial situations improve.
One of the most significant advantages of fractional share investing is its accessibility. Many brokerage firms now offer platforms that allow users to buy fractional shares with no minimum investment requirements. This flexibility enables investors to diversify their portfolios without the need for large sums of money.
A recent survey by Charles Schwab found that 15 per cent of millennials and Gen Z respondents already invest in fractional shares, highlighting a growing trend among younger generations. This method not only allows for diversification across various sectors but also reduces the risk associated with investing in individual stocks.
TD Direct Investing is Canada’s first bank-owned brokerage to offer fractional trading. If you don’t have an investment adviser there are a few online apps for the 'do-it-yourselfer'. Trading platforms such as Wealthsimple, or Questtrade are an alternative, because not all banks offer partial trading that’s why research is paramount.
A cash flow statement (or a budget) is the first step and the most important aspect to building a financial plan.
“Understanding your cash flow provides you with financial stability, enables you to manage your debt, reveals opportunities for savings and investments, and allows you to adapt,” explains Michael Fox, an investment advisor and son of Steven Fox. “Understanding your cash flow gives you peace of mind and alleviates stress allowing you to focus on other aspects of your life."
A Canadian website called TheSheetCode is a good starting point for youths. TheSheetCode was created to simplify personal finance for people at all stages of life.
“We developed products that are accessible to beginners while also offering value to those ready to advance beyond the basics of financial management,” adding, “Our goal is to make personal finance less daunting and more approachable. Financial literacy had a large impact on our lives, and we aim to share that benefit with as many people as possible,” explains owner and designer Travis DeWolfe.
Their Simple Budget tool is perfect for someone just out of high school. It helps establish essential tracking habits with an accessible, easy-to-use format. Plus, it includes a bonus eBook, Building a Basic Budget, which offers a solid introduction to financial literacy.
So start saving babysitting and lawn mowing money, or put ten percent of the wages from a part-time job pay away, and in no time you can be part of the investment world.