How to buy Electronic Arts trending video game stocks for the price of a penny stock
In the second half of May 2022, the video game maker electronic arts (NASDAQ:EA) went from less than $112 per share to eclipse $138 per share. The company, known to gamers and sports fans as EA Sports, recently announced double-digit growth in its annual net bookings and player network.
EA’s $135-$140 price tag isn’t too intimidating, especially compared to high-priced stocks like Auto area and Chipotle Mexican Grill. These two positions are trading above $2,000 and $1,360 respectively. Still, if you’re just beginning your investing journey, you might not want to cut this week’s entire investing budget down to a single action, no matter how much you enjoy playing FIFA 22.
Luckily, there’s a way to own EA stock for well under $140.
Get into split investing
Split investment is the practice of buying shares in units of less than one. Depending on your broker’s rules, you can buy a position as small as one millionth of a stock, and in that case your price on that position will be one millionth of the stock price.
As for EA, you could spend $1 to buy around 0.007 shares. Your fractional shares would go up and down in value, just like a whole share of shares would.
The disadvantages of split investing
So you can buy shares at the change price you find in the couch. What’s the catch? Well, there are a few.
Here are four downsides to split investing. These can be minor or major issues, depending on your investment practices.
- Fractional shares may be less flexible than whole shares. Fractional investing is made possible by your broker – not exchanges. This is important because it means your broker sets transferability and settlement rules. Often you cannot transfer fractional shares to another account. You would have to sell them and then transfer the money. And some brokers take longer or charge additional fees to process fractional stock sales.
- Fees on split investing can get expensive. When you make very small stock purchases, trading fees eat up a high percentage of your investment budget. Fortunately, there are brokers that do not charge fees on split trades.
- You risk missing out on dividends. Fractional shares pay fractional dividends. Say you own half a share of EA. In this case, you would earn half of EA’s $0.19 per quarter dividend – which equals $0.095. Your broker will decide to round this amount up or down to the nearest penny. Note that if your proportional share of the dividend is less than a penny, you might receive nothing at all.
- Your taxes can get complicated. The usual tax rules apply to the fractional investment. You should pay tax on the dividends and gains made. If you negotiate often, you may need to analyze many details to settle your tax bill at the end of the year.
How to get started in split investing
Disadvantages aside, split investing is a simple way to invest on the smallest of budgets. Not only can you own (fractions) of very expensive stocks, but you can also diversify into 10 or 20 positions with as little as $20.
To get started with split investing, find a suitable broker. Some options here include Fidelity, Charles SchwabM1 Finance, Improvement, Robin Hoodand SoFi Invest.
Carefully review the terms of each broker. The specific points to compare are:
- Buying and selling fees
- Dividend management
- Settlement period
- Minimum transaction amount
- Positions available for split purchases
- Management of shareholder voting rights
- Automations — ability to set up recurring investments
Once you choose your broker, you will fund your account, plan your investment approachand start trading.
From fractions to whole numbers
Split investing can be your entry point into investing, but it’s not your endgame. Scale your portfolio to whole positions by investing regularly and increasing your budget often. Stay the course, and soon you could be measuring your wealth in thousands of dollars rather than pennies.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Catherine Broc has no position in the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Charles Schwab and Electronic Arts. The Motley Fool has a disclosure policy.