If you have been investing in the stock market, you have probably noticed that your broker always asks you whether you want to buy in dollars or shares. What is the difference between buying in dollars or shares? What are the advantages?
In this article, we will analyze what are the advantages of buying in dollars or shares and which one you should use.
What does buy in dollars mean and how does it work?
When you buy a stock in dollars that means that you will buy a certain amount of money for that stock.
For example, if you want to invest $100 into a stock that trades at $30 you will own 3 shares and ⅓ of another share.
Buying in dollars is only possible due to fractional shares. This has been one of the most revolutionizing changes in finance as it allows investors with very small sums of capital to invest in the companies they want. Years ago, investors would need to have the amount needed to buy one share, which prevented investors from investing in the stocks they actually wanted.
What does buy in shares mean and how does it work?
When you buy in shares you are defining a fixed number of shares you want to buy. This means that you will own a fixed number of shares.
For example, if a stock is trading at $30 and you have $100 you want to invest in it, you will invest $90 and get 3 shares of that stock.
What is the difference between buy in dollars or shares?
The main difference is that when you buy stocks in dollars, you end up owning a fixed number of shares and a fraction of a share. When you buy a certain number of shares you own a fixed number of shares of the company.
The difference is not very significant, and there are advantages to both of these approaches depending on the type of investor you are.
Is it better to buy in dollars or shares?
There are some advantages of buying both in shares or dollars. Buying in dollars is only allowed due to fractional shares. As it allows you to own a fraction of a single share. Buying in dollars is usually the best option for investors who use a dollar-cost average strategy, and therefore they want to invest a certain amount of money every week or month.
Buying in dollars is also advantageous for investors that have smaller portfolios, and therefore they might be limited to investing a certain fixed amount. It works especially well when you have stocks trading at a few thousand dollars. If you do not have the amount that the stock is trading at, you can still invest by buying in dollars.
For investors looking to invest lump sums of money, buying in shares might be easy. It is also easier to track the number of shares you own.
Is buying stocks in dollars good?
Buying in dollars can be the best option, especially for investors that do not have a lot of money to invest. Here are some of the advantages of buying in dollars:
- You can buy any share even with small sums
- It is easy to use dollar-cost averaging
- Useful for investors with smaller portfolios
- You can define a certain amount in dollars to invest
As we can see there are several advantages of buying stocks in dollars.
There are clear advantages of buying in dollars, especially for investors with smaller portfolios and that are inexperienced. Seasoned investors will tend to buy in shares because it also offers some advantages.
If you started investing recently perhaps the best approach is to buy in dollars. As your portfolio grows you can start buying in shares.
Image source: Unsplash