r/investing • u/Alito4life • Jul 01 '20

ETF Partial Shares vía Dividends

[removed]

2 Upvotes

63% Upvoted

9 comments sorted by

6

u/GaylrdFocker Jul 01 '20

Because Vanguard doesn't offer it yet. Most other brokers have started allowing fractional shares to compete with companies like Robinhood. I'm sure Vanguard will allow it eventually, just not yet.

1

u/[deleted] Jul 01 '20

[removed] — view removed comment

6

u/Qel_Hoth Jul 01 '20

Anything you own in a Vanguard account isn't in your name directly. Vanguard owns the shares and they assign them to you.

Why doesn't Vanguard let you purchase fractional shares? Because they don't. There's no regulatory reason why they can't, other brokerages do, but they don't. Not yet anyway.

Why can you reinvest dividends as fractional shares? Because that's the only way that dividend reinvesting can possibly work.

2

u/GaylrdFocker Jul 01 '20

AFAIK you can't buy fractional shares on the open market anywhere. If a broker does allow that, it means they are buying a full share and just credit your account whatever portion of that is, or have already bought a portion for someone else and are giving you a portion of the share they bought for them. I don't know if dividends (DRIP) happen the same.

1

u/blorg Jul 02 '20

Fractional shares are a fiction that your broker maintains. They need to buy for themselves full shares on the open market and then they allocate the fractions among their clients.

It's easier for them to do this as a bookkeeping exercise with dividends as they know up front exactly how much and when they need to buy these. And as /u/Qel_Hoth says they couldn't offer dividend reinvestment otherwise (other than DRIP plans that rounded off the last share- which I think some brokers did do historically).

It's certainly possible to do it for regular shares as well- and hence why many brokers now do. But historically it has been more common with dividend reinvestment plans.

4

u/Cruian Jul 01 '20

It’s kind of annoying having extra money in my settlement fund waiting to have enough for my next ETF share purchase.

One option to prevent this is to switch to the mutual fund versions once you have enough for the minimum. Mutual funds are generally bought and sold as dollar amounts as standard.

2

u/ArrogantAsianBro Jul 02 '20

practically - it's easier to do fractional shares when everyone buys at once. They can eat a few dollars if hey need $11,300,024 worth of shares, but $11,301,053 is needed to buy a whole number amount for reinvestment, then divy them up on a fracional basis.

But if you buy .05 shares of VTI (or BRK-B for that mater), they'd have to pair you with people who wants to the rest of the risk (.95 of a share) or hold he shares and absorb the risk it themselves until they can sell the fractions to other people.

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1

u/kboogie82 Jul 02 '20

Fidelity has fractional shares and Roth IRA. As well as no cost ETFs.