Is Buying One Share of Stock Worth It?

Investing in the stock market can seem complex, particularly for those considering purchasing a single share. Many individuals wonder if such a small initial step is worthwhile or if it presents more hurdles than benefits. This article explores the practicalities and financial implications of buying just one share, offering insights for new investors navigating the market.

Getting Started with a Single Share

Establishing a brokerage account is the first step to investing in a single share. These accounts, offered by various financial institutions, serve as the gateway to the stock market. You need to provide personal details like your Social Security number and identification to open an account, a process that often takes only a few minutes.

Once open, funding the account is necessary before making purchases. Most brokerages allow electronic transfers from your bank account. When ready to buy, you place either a market order or a limit order. A market order aims to execute immediately at the prevailing price, while a limit order allows you to specify a maximum price you are willing to pay, with the trade only going through if that price is met or bettered.

Fractional shares are an option for new investors with limited capital. Instead of buying a full share, which can be expensive for high-priced stocks, fractional shares allow you to invest a specific dollar amount and own a corresponding portion of a share. This means you can participate in companies with high share prices without needing to purchase an entire share, making investing more accessible.

Understanding the Costs

Even when purchasing a single share, various costs can impact the overall investment. Brokerage commissions, often reduced or eliminated for stock and ETF trades, can still apply in certain situations. If charged, commissions typically range from $5 to $15 per trade, which can disproportionately reduce the value of a small, single-share purchase.

Beyond direct commissions, regulatory fees, such as those imposed by the U.S. Securities and Exchange Commission (SEC), are also a factor, though these are very small for individual trades. An implicit cost is the bid-ask spread. This is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask).

The bid-ask spread acts as a transaction cost; a wider spread means a greater difference between buying and selling prices, which can impact the immediate value of your investment. While commission-free trading has become widespread, reducing upfront costs, the bid-ask spread remains an inherent market dynamic that affects all transactions, including those for a single share. Understanding these costs is important for evaluating the true expense of a small investment.

Financial Implications of Owning One Share

Owning a single share of stock means that its value will fluctuate with the market, experiencing capital appreciation if the price increases or depreciation if it falls. The financial impact from a single share’s price movement will be minimal due to the small quantity owned. For example, a 1% increase on a $100 share only results in a $1 gain.

If the company pays dividends, owning one share entitles you to a small dividend payment, proportional to your ownership. These payments are reinvested or paid out periodically, but the amount will be modest. While common stock ownership comes with voting rights, allowing shareholders to vote on corporate matters, a single share provides negligible influence.

Buying only one share offers no diversification. Investing in a single company exposes you to the specific risks of that company and industry, without the buffer that comes from spreading investments across multiple assets. A lack of diversification means that poor performance from that one company can have a direct and substantial impact on your entire investment.

Broader Investment Strategies

For new investors looking to build wealth, several strategies offer greater benefits than solely purchasing a single, undiversified share. Fractional shares allow you to invest small dollar amounts into a variety of stocks or ETFs, enabling immediate diversification. This approach can make investing in otherwise expensive stocks accessible.

Exchange-Traded Funds (ETFs) are an effective way to achieve diversification with a single purchase, as they hold a basket of underlying assets like stocks or bonds. ETFs trade like stocks and often have lower expense ratios compared to traditional mutual funds, making them a cost-efficient option for beginners. Mutual funds also offer diversification by pooling money from many investors to buy a portfolio of securities, though they may have higher minimum investment requirements.

Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market fluctuations. This consistent approach helps reduce the impact of market volatility by allowing you to buy more shares when prices are low and fewer when prices are high, potentially lowering your average cost per share over time.