Is It Worth Buying Only One Share of Stock?
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One question many investors ask is whether it’s worth it to buy only one share of stock. While it may seem like a small investment, purchasing a single share can have both advantages and disadvantages. This article will explain whether purchasing single shares is worth considering and whether you should contemplate this approach.
How Many Shares Can You Buy Based on Price?
One of the first things to consider when investing in individual stocks is their share price. Prices can vary significantly between different stocks. Penny stocks trade for less than a dollar, while Warren Buffett’s Berkshire Hathaway (BRK.A) is worth around $450,000 for a single share.
The number of shares you can buy will depend on the stock’s price and how much you’re willing to invest. For example, if you want to buy Apple (AAPL) shares, you’d need around $150 at its current market value to purchase a single share of stock. Meanwhile, Amazon’s (AMZN) stock trades for roughly $100, so if you had $500, you could purchase approximately 5 shares of Amazon stock. This, of course, assumes you are trading with a Cash Account and not employing leverage.
Calculating the Number of Shares
Calculating the number of shares to purchase requires a simple three-step process. First, determine the total amount of money you want to invest. Next, you'll need to research the company’s stock you're interested in and find its current market price. Finally, divide your total investment amount by the price per share to calculate how many shares of a stock you can buy.
Calculation Example:
You have $5,000 to invest in Alphabet (GOOGL). At the time of writing, GOOGL shares trade for $90. We would divide $5,000 by $90 to determine that we could purchase 55.55 shares, rounded down to 55 shares.
Is it Okay to Buy One Share of Stock?
Buying just one share of stock may seem like a small investment, but it can set you on the right path for future investment decisions and meeting your personal finance goals. An advantage of purchasing only one share is that, for the most part, it’s a low-cost way to gain exposure to the stock market.
Additionally, buying a single share can provide an opportunity to get a feel for how Wall Street (and the overall stock market) works and the mechanics behind investing. You can also purchase single shares with the intention of dollar-cost averaging later, which can help you accumulate a larger position over time.
However, there are also potential disadvantages to buying just one share. The transaction fees can be proportionally more significant on smaller investments, potentially affecting your returns. This cost can be mitigated by opening an online brokerage account that charges little commission.
Portfolio Diversification
While it’s perfectly acceptable to just buy one share of a stock, it’s best to do so in the context of a diversified portfolio. Diversification involves spreading your investments across multiple stocks and sectors to reduce risk and maximise potential returns rather than investing in just one stock.
If you invest all of your money into a single, expensive stock, you could lose a significant portion of your capital if that stock declines. By diversifying your portfolio, you can reduce your exposure to any stock’s risk and minimise the volatility of your portfolio’s returns.
The Bottom Line
Purchasing single shares is worth it if it aligns with your investment strategy and goals. It can be a great starting place for beginners looking to find their feet in the stock market, and buying single shares can soon be compounded into a sizeable position through dollar-cost averaging.
An alternative to buying physical shares is through derivatives, such as CFDs (Contracts for Differences). FP Markets is a leading Forex and CFD broker that facilitates access to various asset classes, including individual shares. Through leveraged CFDs and a suite of popular trading platforms, traders and investors can access more than 10,000 individual shares across major international equity indexes, such as London and New York, and trade with a globally recognised broker.
