3 Ways Around an Extravagant Stock Price
It happens to would-be investors all the time: You want to invest in a major company like Amazon (NASDAQ: AMZN), but you don’t have the $3,400 you need to purchase a share. You may think that means you have to scrap the whole idea, but that’s not true.
Here are three ways you can buy the stock you want without spending a fortune.
1. Wait for the share price to drop
If a stock’s share price is just a little higher than what you can afford, you may prefer to just wait for it to drop. Stocks are volatile and can experience many ups and downs in a single day. So just because you can’t afford to buy a stock right now doesn’t mean you won’t be able to in the future.
That said, it depends on how far the share price is from what you plan to spend. For example, if you only have $500, this wait-and-see method probably isn’t going to help you buy a share of Amazon; it’s unlikely the share price is going to fall that much at any point in the foreseeable future.
And if you do see a company’s stock price suddenly plummet like that, that could be a sign that it’s not a good buy after all. Some volatility is to be expected when you’re investing in stocks, but if a company’s stock begins steadily losing market share to its competitors, that could be a sign that something’s wrong with its business model. Its share price may continue to decline after you buy, and then you could end up losing money.
2. Place a limit order
Limit orders are one tool you can use to automate the method above. Basically, a limit order tells your broker to purchase or sell a certain number of shares of a given stock when the share price goes below (or above for sell orders) a certain amount. The advantage to this is that you don’t have to sit by and watch the stock prices change yourself. You can just let the computer do the work for you.
But it has some of the same drawbacks discussed above. The limit order will execute if the share price drops below the amount you stipulate, but that doesn’t mean that will ever happen.
What’s more, it’ll execute as soon as the price falls to the level listed in the limit order. That can cause its own problems.
Say you want to purchase 10 shares of a stock when its share price falls to $15 or below. Then you ignore the stock and trust the computer to do its work. When the share price falls to $15, you get your 10 shares. But if shares fall to $10 the next day, you missed out on an opportunity to get your 10 shares for $50 less.
There’s no guarantee you would’ve avoided this mistake even if you’d been monitoring your portfolio closely. But if you’d been keeping up with company news, it’s possible you could have seen the bigger drop coming and saved yourself some money.
3. Purchase fractional shares
Fractional shares are most people’s best bet for purchasing an expensive stock. They’re pretty much exactly what they sound like.
Instead of buying a full share of a stock for hundreds or even thousands of dollars, you purchase a fraction of that stock for a fraction of the price. You choose how much you want to pay and what you want to invest in. Then you end up with as much of a share of that stock as your dollars allow you to purchase.
For example, if you have $500 and you want to invest in Amazon, which costs about $3,400 per share, you’d divide $500 by $3,400 and end up with 0.147 of a share. That’s how much you would own. But apart from the fact that you have a smaller stake in the company, it’s the same as buying a full share.
The biggest downside to fractional shares is that not all brokers enable you to invest in fractional shares right now. However, this is becoming more widespread. If you’re interested in purchasing fractional shares of a stock, check with your broker to see if this is an option for you. If not, look into some other brokers that offer this service.
A high share price doesn’t have to keep you from investing in the stocks you want. But remember, a high share price isn’t always an indication of a great investment, either. The recent meme stock craze illustrates that.
So before you invest in anything, do your research to make sure the stock is actually a good fit for your portfolio. Then try one of the methods above if you can’t afford to purchase a full share.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.