‘By the slice’ platforms vie for small-time investors

Fifty years ago, the investor with only a few dollars to start was looked down upon and called an “odd lotter.” Now the largest firms, including Schwab and Fidelity, are trying to get a piece of the small investor action, which was pioneered by firms like Interactive Brokers, Robinhood, Stash, Acorns and Stockpile.

Old fashioned mutual funds have fallen out of favor with this generation. And maybe that’s not surprising when you see the report that 90% of actively managed funds failed to beat their benchmarks over the past 10 years. Even exchange-traded funds (ETFs) don’t seem exciting to next-gen investors. They’d rather mix and match a few dollars in their own mini portfolios. And with many popular stocks trading at prices well over $500 a share, getting a bit of one share is better than watching on the sidelines.

It appears someone forgot to trademark the term “stock slice.” So shortly after Schwab announced its “slices” program of fractional share purchases, Fidelity followed suit with a similar plan. Here’s how they work — along with a comparison with other platforms that have been attracting individual investors seeking low costs, low minimum account requirements and the ability to buy just a few shares.

Schwab “Stock Slices”: The brokerage division of Charles Schwab lets you purchase a “slice” of stock for as little as $5. Or you can purchase 10 slices for $50 — instantly diversifying your mini-portfolio with well-known names in the S&P 500 stock index.

You can buy and sell commission free after opening a Schwab account and depositing your money. All orders are executed “at the market,” meaning you could be surprised in a volatile market. Accounts can be titled individually, or inside an IRA or custodial account.

Fidelity “Stocks by the Slice”: This new slice program at Fidelity is aiming squarely at the same market as Schwab. This program is available through Fidelity’s mobile app only. Amazingly, the minimum purchase amount is just a penny (as long as that buys at least 1/100 of a share).

You can trade any exchange-listed stock or ETF (except Berkshire Hathaway) with no minimum dollar amount. You pay zero commissions. Market or limit orders are accepted.

You can trade inside an IRA, a 401(k) brokerage account — and even open a custodial account for grandchildren. (Remember, the money is theirs at age 18 in most states, and that highly impacts financial aid for college).

Robinhood Fractional Shares: Robinhood has extended the free, no-commission trading trend they started several years ago. Fractional shares can be purchased in onemillionth of a share — with a minimum purchase of $1 — but only in companies with a market cap of $25 million. Shares can be traded in dollar amounts or share amounts. The platform trades in real time but does not allow limit orders.

Interactive Brokers: This is a sophisticated platform for professional traders, but it also allows trading in fractional shares for most types of accounts. In fact, the company even allows short selling of fractional shares.

Stockpile: This has been my favorite website for gifting shares to children. It offers gift cards and educational materials along with the purchase. But it charges 99 cents per transaction and orders are bundled and purchased twice a day, so you have limited control over the purchase price. Still, its online educational interface makes it a popular place to get started.

The young investors these platforms appeal to may have little knowledge of corporate fundamentals or economic valuations. But it’s undeniable that they have an edge in electronic trading because of all those years spent with heads bent over their tablets. The market will teach them the other lessons. And that’s The Savage Truth.