One may be the loneliest number, as the song says. But there is nothing wrong with owning one share of stock, financial advisers say.
In fact, buying one share of stock has recently become easier than ever.
True, buying a single share might seem, well, kind of pointless. But for smaller investors, it can be a powerful psychological tool, a way to experiment with investing in individual companies and getting a feel for their day-to-day movements before taking a bigger plunge. It can also be a relatively safe and easy way to diversify a small portfolio—or even introduce a young person to the world of investing.
That hasn’t always been the case. In the past, commissions could add a meaningful percentage to the price of buying a single share or subtract a decent percentage from the income gained by selling one. But going the solo-share route has become a strategically viable option in the past year, as most online brokerages have cut their trading commission to zero. Some brokerages even offer free trading for fractional shares—just a piece of one share—of companies and exchange-traded funds.
“Buying or selling a single share makes sense, because you’re not paying,” says Nancy Tengler, chief investment officer at Laffer Tengler Investments in Phoenix.
The big numbers
In most cases, of course, buying one share doesn’t get you much. But some popular stocks are so expensive that buying just one stock can offer a substantive investment. The list includes Amazon.com AMZN +1.83% at $3,125 a share and Google parent Alphabet GOOG +1.36% at $1,458.42 for the Class C shares (GOOG).
Largely, though, you’re going to be buying single shares of less-pricey stocks, which allows you to include more companies in your holdings. “You can more easily get diversified exposure,” says Christine Benz, director of personal finance for Morningstar, an investment-research firm in Chicago.
You can even set up your own mini-index fund by purchasing a range of single shares. For instance, investors can buy shares of many companies from a small index, such as the Dow Jones Industrial Average, which comprises 30 blue-chip stocks, or the S&P 500 Dividend Aristocrats Index, which generally includes 40 to 50 stocks in the S&P 500 index that have increased dividends for at least 25 straight years, Ms. Tengler says. Dividends from even single shares of such stocks, when combined, can provide meaningful payouts for small investors.
Or you can cherry-pick stocks from larger indexes, such as the S&P 500 or the Nasdaq-100 Index, which is heavily weighted toward big technology companies. “Index providers have done the research for you,” Ms. Tengler says. “If you’re a tech geek, or if you’re into health care, you can create your own sector fund. You have to buy what you understand.”
Buying a single share can also bring psychological benefits. If you want a stock but fear the market will turn against you, picking up one share gives you a safe way to get the satisfaction of following through on your belief.
What’s more, going for just one share can help you ease into the idea of making larger stock investments. “It’s like getting into the pool slowly,” Ms. Tengler says.
Once a stock is in your portfolio, you’ll likely follow it closely, learning more about the company and perhaps buying more later on. “The transaction makes you more aware of the stock than if you didn’t buy,” says Ken Mahoney, CEO of Mahoney Asset Management in Chestnut Ridge, N.Y. “It’s like a placeholder.”
A gift idea
Another benefit of buying a single share is that it gives you access to the company’s annual meeting, he says. Many shareholders love going to Berkshire Hathaway’s BRK.B +0.96% meeting in Omaha, Neb., to see CEO Warren Buffett presiding. (This year’s meeting was online.)
If you are going to buy any single share, Berkshire would be the one, as you’re getting “a basket of businesses run by the best capital allocator of our lifetime,” says Morningstar’s Ms. Benz, who generally recommends funds over individual stocks.
Finally, single shares can be a good gift for friends and family—sometimes as a lark (a share of Walt Disney DIS +0.51% to a Disney fan, for example) or a way for a parent or grandparent to help young people learn about companies and financial markets. “It’s a teachable moment for how stocks and investments work,” says Tom Fredrickson, a New York financial planner. “I’m thinking I should do that with my [20-year-old] son.”
Jack Ablin, chief investment officer at Cresset Capital in Chicago, says he was given a single share of Comsat—a telecommunications company—as a youngster. “it helped spark my interest in stocks,” he says.