Trading stocks involves purchasing shares at odd dollar amounts. Most shares are seen at prices like $2.45, $7.74, or $110.03. Buying shares in bulk at odd dollar prices will add up to odd dollar figure investments. Dollar-based investing works with even dollar amounts, unlike traditional stock share prices. Instead of figuring the cost of shares and paying odd dollar amounts, the investor is allowed to choose the dollar amount in even prices with dollar-based investing. So instead of paying the price of multiple shares at odd amounts, the investor can choose investments like $50, $100, or $200 a month.
This is appealing for investors who want to put a set amount to the side to invest in stocks every month. The amount the investor pays in doesn't necessarily buy an exact number of shares because they are in odd dollar amounts. However, the money being invested that is left over is used to buy more shares the next month. This process builds an extra amount of investment that makes a huge difference in the long run. Dollar-based investing lets individuals who cannot afford full share prices as well. However, in order to buy partial shares the investor will need to set up a share building account. These accounts allow investors to build their investments over time.
Partial shareholding isn't available in the traditional arena of the stock market. This makes it difficult for those who don't have as much money but still want to invest. Share building accounts allow smaller investors to buy partial shares and ignore current share prices. Investors that have smaller monthly budgets for shares accumulate fractions of shares on regular bases. After awhile, the smaller investor will have invested enough to purchase full shares. Share building accounts automate this process. For example, if a certain share price is $200 and the investor is paying $50 a month, it would take 4 months to earn a full share. However, the first month they legitimately own 25% of a single share. The second month they own 50% and so on.
During the months that the share price increases the partial shares also increase in value. Before share building accounts and dollar-based investing, the prospecting investor would have to save their money every month under their mattress or in the closet. Meanwhile they were missing out on the increasing value of the shares. Dollar-based trading makes investing easy for the beginner. In fact, it is recommended that new investors that have little or no knowledge about the stock market should start out with dollar-based investing. It's a great way for a new investor to get their feet wet in the stock trading world.
Traditional stock brokers and online discount brokers do not provide these types of services. Only share building accounts allow for partial share investing. Let's say that you want to invest $200 a month with a company that has shares for $20.25. You can buy 10 shares, but it would cost $202.50. With dollar-based investing, you're allowed to buy the full 10 shares for $200. The last share wouldn't be a full share, but it would be a partial share. The next month you invest $200 again, that partial share becomes a full share and the processes starts over every month.
New investors that want to take the complexities of stock trading out of the equation can do so with dollar-based investing. There is no reason any investor should miss out on earning opportunities. Opening a share building account and starting out with dollar-based investing will help you understand the stock market before making more risky investments. It is a great way to build a foundation and start an investment portfolio.