Do fractional ETF shares really matter?

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TimRCM
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Do fractional ETF shares really matter?

Post by TimRCM »

My taxable brokerage is with Schwab today, and I exclusively plan to buy VT with DRIP enabled in it. I’ll probably make a purchase biweekly or monthly.

The lack of fractional ETF share availability with Schwab bugs me a bit more than it probably should, though. If I decided that today’s savings is $500, I’d only be able to buy 4 shares and let $80-90 sit around uninvested. In the long run, does this really matter? Compounding is a real thing, and it’s why I plan to leave DRIP enabled, so I’m convincing myself that this is sort of a big deal.

If so, I’m debating either:

Opening a taxable account with Vanguard and using VTWAX instead (two extra basis points doesn’t bother me compared to the convenience of automating things)

Or

Opening an account with M1 or Fidelity where I can buy fractions of VT.

Has anyone else had similar thoughts, or have anything to share that might help me make a decision? I also use Schwab’s checking and have been with them for over a decade. I only have a small gain right now with a few thousand invested and could easily sell and move brokers as cash without much of a real tax penalty.
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JoMoney
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Re: Do fractional ETF shares really matter?

Post by JoMoney »

No, I don't think having $90 in cash rather then invested in stocks will move the needle.
Personally, I think one should keep a small emergency fund of something like a $1,000 in cash before even thinking about investing in stocks.
If you kept something (roughly) larger than a few shares of stock as an emergency fund, you'd have sufficient cash to round it up to a whole share if that really bothered you.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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TimRCM
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Re: Do fractional ETF shares really matter?

Post by TimRCM »

That is a solid point, I could always just transfer in the extra $xx.xx to buy another share… thanks for the response!

My mind is rather set in the “I want to invest this flat dollar amount this month” mode from mutual funds, but I far prefer VT to picking my own allocations between domestic/international (no, please let’s not turn this into another one of those threads - my particular mind is made up on that part :D )
greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

I really wanted to use Schwab because I feel it has the best website and banking combination. I opened an account there but then realized it doesn’t (yet) allow purchases of fractional shares. (I bet it will soon.) At the time, I wanted to invest set dollar amounts into various ETFs after each paycheck. So I moved to Fidelity for that reason. (As a side note, I then realized that I prefer mutual funds over ETFs for regular, large long term investments, so I moved to Vanguard.)

If you want to invest set dollar amounts on a regular basis, I do think it makes a difference. Both because you have uninvested cash laying around and because it could throw off your regular contribution allocations and require you to pull out a calculator each time you invest cash. Also, if you are a long term investor, you have to keep in mind that at some point, the price of a single share of something like QQQ is going to get so high that it could exceed the amount you have to invest after, say, each paycheck.

Another thing to consider is how you will be withdrawing from ETFs when you retire. You’ll have to manually sell them during trading hours, whereas with a MF you can set up a regular distribution in retirement.

This thread may also provide some helpful insights https://bogleheads.org/forum/viewtopic.php?f=1&t=350108
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Re: Do fractional ETF shares really matter?

Post by placeholder »

With taxable I would always transfer in extra cash as you don't really know the price until you buy the whatever bit was left transfer back out to checking which doesn't work so great with iras but I don't want fractionals because usually those won't transfer at least traditionally.
fwellimort
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Re: Do fractional ETF shares really matter?

Post by fwellimort »

You could always just invest left over cash in Schwab Index Funds
There aren't VTWAX equivalents in Schwab mutual index funds but you can invest in US Total Market Index Fund with remaining cash like SWTSX

List is here: https://www.schwab.com/schwab-index-funds-etfs

I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.

I don't visit my Vanguard account at all because I dislike the UI experience. I enjoy the Fidelity UI more (and the brokerage gives more 'control' too [including free Turbotax Premier]).

That said, at end of day, it's up to you. If the left over cash annoys you (cause it IS a drag to future returns), then I suggest moving to Fidelity. Great brokerage with great services. The unlimited ATM withdrawals (Schwab pays back end of month unlike Fidelity which is within a few days) is a perk I don't want to lose out on.
dcabler
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Re: Do fractional ETF shares really matter?

Post by dcabler »

Once I started investing in ETFs, fractional shares weren't available. And yet somehow I survived.
I was already at Fidelity, so happy when fractional shares became available though. Now it's more like when I purchased dollar amounts in mutual funds, but not exactly since ETFs trade during the day. Other than staying away from the first hour or two after the market opens and staying away from the last hour or two before closing, I ignore what's going on in the market when I make my purchases.

But if I step back, do I notice a difference? Not really.
I purchase shares every month. Honestly, the amount I purchase on a monthly basis compared with the total size of the portfolio means that before fractional shares were available, the fact that some was leftover didn't matter much in the scheme of things. At any rate, some of the leftover from the previous month just ended up being added to the current month. Now with fractional shares, the only leftover is what I intend to leave as leftover.

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Gaston
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Re: Do fractional ETF shares really matter?

Post by Gaston »

The OP mentions that he is in a taxable account. This is somewhat off-topic, but here’s another thought.

Index ETFs are fairly tax efficient, but Vanguard (and no one else) has a technique to make them even more so. Depending on your tax situation, you will save more by avoiding capital gains distributions than you will with fractional share purchases.

I’m not trying to push Vanguard, but this is an area where they offer a benefit that no one else currently offers. See this link: https://www.investopedia.com/how-vangu ... ds-4686985
lazynovice
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Re: Do fractional ETF shares really matter?

Post by lazynovice »

Gaston wrote: Sat Jun 19, 2021 6:57 am The OP mentions that he is in a taxable account. This is somewhat off-topic, but here’s another thought.

Index ETFs are fairly tax efficient, but Vanguard (and no one else) has a technique to make them even more so. Depending on your tax situation, you will save more by avoiding capital gains distributions than you will with fractional share purchases.

I’m not trying to push Vanguard, but this is an area where they offer a benefit that no one else currently offers. See this link: https://www.investopedia.com/how-vangu ... ds-4686985
What you are saying is true for vanguard mutual funds that have an ETF share class- the ones commonly used here. It is not an advantage of Vanguard ETFs. All ETFs commonly purchased by Bogleheads avoid capital gains distributions.
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UpperNwGuy
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Re: Do fractional ETF shares really matter?

Post by UpperNwGuy »

Gaston wrote: Sat Jun 19, 2021 6:57 am The OP mentions that he is in a taxable account. This is somewhat off-topic, but here’s another thought.

Index ETFs are fairly tax efficient, but Vanguard (and no one else) has a technique to make them even more so. Depending on your tax situation, you will save more by avoiding capital gains distributions than you will with fractional share purchases.

I’m not trying to push Vanguard, but this is an area where they offer a benefit that no one else currently offers. See this link: https://www.investopedia.com/how-vangu ... ds-4686985
Your link describes how Vanguard makes mutual funds more tax efficient. Vanguard can't make ETFs more tax efficient. Their ETFs have the same tax efficiency as iShares ETFs and others.
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wander
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Re: Do fractional ETF shares really matter?

Post by wander »

No, they don't really matter to me.
Gaston
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Re: Do fractional ETF shares really matter?

Post by Gaston »

UpperNwGuy wrote: Sat Jun 19, 2021 7:33 am Your link describes how Vanguard makes mutual funds more tax efficient. Vanguard can't make ETFs more tax efficient. Their ETFs have the same tax efficiency as iShares ETFs and others.
Thanks. Didn’t know that. I thought it was both.
lazynovice
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Re: Do fractional ETF shares really matter?

Post by lazynovice »

I am at Fidelity and avoided fractional shares until last month. The first time I read about them, I got the impression that they were going to be priced higher than regular shares. Someone here told me that it was tiny. Since then I have been using them. The fractional share usually prices about half a penny more than the whole shares bought at the same time. Before that, I just stuck the minor cash amounts into a Fidelity mutual fund that I will always own.

If I loved Schwab, I don’t think I would move from Schwab for fractional shares. Schwab’s inability to accommodate tax loss harvesting with specific ID without a phone call is a deal breaker to me.

I don’t understand how investing the same amount every time syncs up with being worried about having a little leftover cash. Bills don’t come in exactly evenly pay period to pay period. If you are sending the same amount each month to investments, at some points in the month, you have too much cash in checking. If having the extra cash in checking does not bother you, why does having the extra cash in the investment account bother you?
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absolute zero
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Re: Do fractional ETF shares really matter?

Post by absolute zero »

Assuming a 5% RoR, having $100 perpetually uninvested leads to an opportunity cost of $5 per year. This is a very big problem...for people who are OCD. From a financial standpoint, there is no problem here at all.

If you find it more convenient, you could also just invest in VTWAX at Vanguard. Then once a year or so, convert the VTWAX to VT. Then you can have your nice smooth numbers, you can forego the wasted $5 per year, and can avoid the 2 bps incremental fees associated with VTWAX. All trivial stuff in my opinion, but maybe this would work for you.
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ResearchMed
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Re: Do fractional ETF shares really matter?

Post by ResearchMed »

Gaston wrote: Sat Jun 19, 2021 6:57 am The OP mentions that he is in a taxable account. This is somewhat off-topic, but here’s another thought.

Index ETFs are fairly tax efficient, but Vanguard (and no one else) has a technique to make them even more so. Depending on your tax situation, you will save more by avoiding capital gains distributions than you will with fractional share purchases.

I’m not trying to push Vanguard, but this is an area where they offer a benefit that no one else currently offers. See this link: https://www.investopedia.com/how-vangu ... ds-4686985
I thought that this "Vanguard advantage" was for their mutual funds when there was also an ETF class of the same fund. That is, this allowed the mutual fund to have the same (similar?) advantages as the ETF.
Does Vanguard actually do anything "special" with regard to its ETFs vs ETFs of other financial institutions? I thought the advantage was that Vanguard had mutual fund shares of the *same* holdings as some of their ETFs.
(Our major investment are all in 403b plans where ETFs are not allowed, so I have not paid full attention to specifics, so perhaps I misunderstood that "Vanguard advantage".)

And to OP:
TimRCM wrote: Fri Jun 18, 2021 11:59 pm I only have a small gain right now with a few thousand invested and could easily sell and move brokers as cash without much of a real tax penalty.
IF you decided to move to Vanguard so that you could purchase the mutual fund version (or to another vendor offering fractional ETF shares), there's no need to liquidate your current ETFs holdings and pay any tax at all. Just transfer those "in kind" to that same new account, and then let them sit and compound nicely with the DRIP turned on.

If you are so concerned with letting "$80-90 sit around uninvested", then I would have thought the loss of the compounding on the taxes of the current gains would especially concern you.

I assume that if you don't want to add the extra to the "$80-90" to buy that next full ETF share (and thus let that $80-90 *not* compound), you also don't want to take each time period's "extra" and buy the extra share when that total amount equals a full share? That wouldn't "cost you extra" each time period, but *would* have the inconvenience you wish to avoid by always buying exactly $500 worth, etc.
But that also means you are letting those "$80-90" (or whatever amount) chunks each time period add up over what could be many, many pay periods/years... without investing any of that increasing amount at all...??

Or are you letting those "extra amounts" accumulate and then every so often buying something... eise?
If so, then the loss of compounding is really on a small amount, relatively speaking, and for quite short periods of time, and not on the slowly but surely growing amount of "extra money" that continually goes uninvested every pay period.

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greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
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Re: Do fractional ETF shares really matter?

Post by livesoft »

TimRCM wrote: Fri Jun 18, 2021 11:59 pm My taxable brokerage is with Schwab today, and I exclusively plan to buy VT with DRIP enabled in it. I’ll probably make a purchase biweekly or monthly.

The lack of fractional ETF share availability with Schwab bugs me a bit more than it probably should, though. If I decided that today’s savings is $500, I’d only be able to buy 4 shares and let $80-90 sit around uninvested.
If this bothered me, then I would dig deep into my checking account or my emergency fund and come up with the spare cash to turn that $80-$90 into $101.82 (or whatever) and buy one more integral share of VT.
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lazynovice
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Re: Do fractional ETF shares really matter?

Post by lazynovice »

greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
No, actually when you transfer that is exactly how it works-at least when I transferred from vanguard to fidelity. The .67 shares are sold. So you incur the capital gains on that tiny little fractional sale only. I was pretty worried about it and it was not an issue at all.
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greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

lazynovice wrote: Sat Jun 19, 2021 8:07 am
greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
No, actually when you transfer that is exactly how it works-at least when I transferred from vanguard to fidelity. The .67 shares are sold. So you incur the capital gains on that tiny little fractional sale only. I was pretty worried about it and it was not an issue at all.
But VG does not support fractional share purchases (except I guess for automatically reinvested dividends). Were your fractional shares at VG just dividend reinvestments, and did VG add up those fractional shares to whole shares, even if they were comprised of fractions purchased at different tax lots? In that case, how would Fidelity show the cost basis for those “whole” shares comprised of fractions purchased at different prices? I’d be interested to hear how it works transferring shares from Fidelity (where someone consciously purchased fractions over time, not just dividend reinvestments) to someplace else.
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Re: Do fractional ETF shares really matter?

Post by lazynovice »

greenway23 wrote: Sat Jun 19, 2021 8:14 am
lazynovice wrote: Sat Jun 19, 2021 8:07 am
greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
No, actually when you transfer that is exactly how it works-at least when I transferred from vanguard to fidelity. The .67 shares are sold. So you incur the capital gains on that tiny little fractional sale only. I was pretty worried about it and it was not an issue at all.
But VG does not support fractional share purchases (except I guess for automatically reinvested dividends). Were your fractional shares at VG just dividend reinvestments, and did VG add up those fractional shares to whole shares, even if they were comprised of fractions purchased at different tax lots? In that case, how would Fidelity show the cost basis for those “whole” shares comprised of fractions purchased at different prices? I’d be interested to hear how it works transferring shares from Fidelity (where someone consciously purchased fractions over time, not just dividend reinvestments) to someplace else.
I converted my VTSAX shares to VTI creating fractional shares at Vanguard. Each lot showed the same cost basis as before but computed based on ETF shares instead of mutual fund shares. When I transferred, all lots came to Fidelity looking the same- with fractions. One lot was different. It still had a fraction but was missing a small amount. Total shares was a whole number. The leftover fraction was sold by vanguard and the cash followed via ACAT a few days later.

I agree, it would be interesting to see if Fidelity does it differently, but I would assume not until I see otherwise.
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mpsz
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Re: Do fractional ETF shares really matter?

Post by mpsz »

Another strategy is to use a margin account and to take your dividends in cash. I'd prefer to have fewer tax lots (eg, buy only in increments of ~$1,000 instead of reinvesting $10.32 of dividends) so I do not use DRIP.

If I have $1,000 in cash and I want to buy 10 shares of an ETF @ $101 (total = $1,010), my account's cash balance will go negative by $10. That'll be taken care of by the quarterly dividend and it will cost me 20 cents or less in interest.
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Re: Do fractional ETF shares really matter?

Post by 22twain »

absolute zero wrote: Sat Jun 19, 2021 7:49 am Assuming a 5% RoR, having $100 perpetually uninvested leads to an opportunity cost of $5 per year. This is a very big problem...for people who are OCD. From a financial standpoint, there is no problem here at all.
+1

I have my Vanguard ETFs in brokerage accounts (taxable and Roth) at T Rowe Price, which doesn't have let me buy fractional shares except when automatically reinvesting dividends. The "cash turds" don't bother me.
It's "Roth", not "ROTH". Senator William Roth was a person, not an acronym.
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Re: Do fractional ETF shares really matter?

Post by retired@50 »

TimRCM wrote: Sat Jun 19, 2021 12:24 am That is a solid point, I could always just transfer in the extra $xx.xx to buy another share… thanks for the response!

My mind is rather set in the “I want to invest this flat dollar amount this month” mode from mutual funds, but I far prefer VT to picking my own allocations between domestic/international (no, please let’s not turn this into another one of those threads - my particular mind is made up on that part :D )
Instead of thinking in dollar amounts, try switching to share amounts. Maybe you used to buy $1,000 at a time, well now, just buy 10 shares. Since it's trading at $101.80 per share, you'll save a tiny bit more because it will cost you $1,018. So, the tiny additional savings will help out in achieving your goals. Who cares if the amount taken from your checking account is $1,000 or $1,018 right?

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UpperNwGuy
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Re: Do fractional ETF shares really matter?

Post by UpperNwGuy »

greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
Are you sure this is true, or are you speculating?
greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

UpperNwGuy wrote: Sat Jun 19, 2021 10:12 am
greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
Are you sure this is true, or are you speculating?
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greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

greenway23 wrote: Sat Jun 19, 2021 10:41 am
UpperNwGuy wrote: Sat Jun 19, 2021 10:12 am
greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
Are you sure this is true, or are you speculating?
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greenway23
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Re: Do fractional ETF shares really matter?

Post by greenway23 »

greenway23 wrote: Sat Jun 19, 2021 10:42 am
greenway23 wrote: Sat Jun 19, 2021 10:41 am
UpperNwGuy wrote: Sat Jun 19, 2021 10:12 am
greenway23 wrote: Sat Jun 19, 2021 8:01 am
fwellimort wrote: Sat Jun 19, 2021 1:32 am I just invest in Fidelity and I love buying fractional ETFs. I like the portability (easy to tax loss harvest and future proof for moving around to get sign up bonuses) and the penny or two left over I just invest in FZROX/FZILX.
My understanding is that as of now, fractional shares can’t be transferred to other brokerages. In the “quantity” column, Fidelity gives you the illusion that your fractional share purchases have added up to, say, 100.67 shares of an ETF, but at the end of the day many of your “whole” shares are just combinations of fractional shares purchased at various different prices over time (i.e., lots). So although Fidelity says you own a certain number of whole shares, I would think that many of them are not portable; it’s not like you could transfer 100 and only have to liquidate .67 (or buy .33 more). (Maybe this could be avoided by using average price cost basis, but that has its own disadvantages.)
Are you sure this is true, or are you speculating?
I’m not sure, just speculating. I feel like fractional purchases may eventually become so commonplace (like commission free trades) that there will be no issues with portability.
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Re: Do fractional ETF shares really matter?

Post by sycamore »

greenway23 wrote: Sat Jun 19, 2021 10:43 am ...
I’m not sure, just speculating. I feel like fractional purchases may eventually become so commonplace (like commission free trades) that there will be no issues with portability.
As noted upthread by lazynovice, things don't work the way you speculated.

Say you had, for example, four separate lots where lot 1 is your main purchase of 1000 shares, and lots 2, 3, 4 are of 2.2, 2.6, and 2.7 shares respectively from reinvested dividends. Total of 1007.5 shares. When doing an in-kind transfer, the 0.5 shares will be liquidated at the outgoing brokerage and the proceeds transferred later. 1007 whole shares will be transferred. There will be four lots in the new brokerage.

The one minor issue is which lot(s) will the brokerage take the 0.5 fraction from? Would they take it from the most recent lot, oldest lot, highest cost basis lot or what? I don't know if there's any regulation or industry standard that applies to this situation. Best thing to do is keep track of one's own cost basis (don't rely solely on the brokerage) and then you can easily check what happens. I would do that anyway, even if no fractional shares were involved in a transfer.
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TimRCM
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Re: Do fractional ETF shares really matter?

Post by TimRCM »

Just now revisiting this - thank you all for the discussion on this!

Schwab has treated me pretty well over the years, so I don’t think I’ll rush away from them just for lacking fractional ETFs. I find their mobile app very good and end up using it to execute most of my purchases given that it must be done during the trading day when I’m usually in a cubical farm.

Regarding fractional transfers, I do believe that only the part after the decimal is ineligible. I tested out Schwab’s ‘slices’ program once with several small purchases of a blue chip for a few days and had something like 1.7 shares. When I sold it, the whole share was sold separately on the open market even though I bought in a couple rounds with little fractions all less than 1.0.
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cchrissyy
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Re: Do fractional ETF shares really matter?

Post by cchrissyy »

The lack of fractional ETF share availability with Schwab bugs me a bit more than it probably should, though. If I decided that today’s savings is $500, I’d only be able to buy 4 shares and let $80-90 sit around uninvested. In the long run, does this really matter? Compounding is a real thing, and it’s why I plan to leave DRIP enabled, so I’m convincing myself that this is sort of a big deal.

I am with you 100% on the power of compounding, but i don't think there is any noticeable difference from investing 2 weeks later than you would have been. remember, even if this happens throughout your whole lifetime we are only talking about less than 1 share, and we are only talking about a 2 week delay.

here is a fictional case i think we can agree is worse. let's say you had a strange bank that held your paycheck for 2 weeks before you could send it to schwab, and therefore, for your entire investing lifetime every time you buy shares is 2 weeks later than you wish it was. but you still invested the same amounts and you did it steadily, according to your plan, not reacting to behavioral errors or market swings. you would be fine! worst case is you hit your retirement or other arbitrary goal number on a 2 weeks delay. but realistically, the difference is a rounding error compared to your total portfolio size!

this is a wacky case where every share you invested was on a delay, and not only effecting a fraction of the final share on the order. in your actual question you are buying say, 10 shares now and leaving the money for 0.2 shares to be part of the next purchase, where you buy 10 again, so now there is money for 0.4 shares waiting, and then after a few times you have enough change to buy 11 shares. the real important part is not the change. it is that you keep contributing and you don't abandon your plan.

alternate examples
- an employer who pays once per month instead of every 2 weeks
- you discovered bogleheads 2 weeks later so the whole plan shifts further out in time, delaying your retirement by, what, 2 weeks and a day? i would say no, probably by nothing! by the time your portfolio is big enough to retire on, the value of the 2 week head start is probably not perceptible.
Last edited by cchrissyy on Sat Jun 19, 2021 11:33 am, edited 1 time in total.
runninginvestor
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Re: Do fractional ETF shares really matter?

Post by runninginvestor »

TimRCM wrote: Sat Jun 19, 2021 12:24 am That is a solid point, I could always just transfer in the extra $xx.xx to buy another share… thanks for the response!

My mind is rather set in the “I want to invest this flat dollar amount this month” mode from mutual funds, but I far prefer VT to picking my own allocations between domestic/international (no, please let’s not turn this into another one of those threads - my particular mind is made up on that part :D )
If you moved to vanguard, just invest in the mutual fund, then periodically do the tax free conversion to the equivalent mutual fund. That way you have the option to move your ETFs at a later date to a different brokerage if you really wanted and avoid transaction fees for holding a vanguard mutual fund at a different brokerage. You'll also still be able to Auto invest and recapture some of the lower expense ratio and ETF while you're at vanguard
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ruralavalon
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Re: Do fractional ETF shares really matter?

Post by ruralavalon »

TimRCM wrote: Fri Jun 18, 2021 11:59 pm My taxable brokerage is with Schwab today, and I exclusively plan to buy VT with DRIP enabled in it. I’ll probably make a purchase biweekly or monthly.

The lack of fractional ETF share availability with Schwab bugs me a bit more than it probably should, though. If I decided that today’s savings is $500, I’d only be able to buy 4 shares and let $80-90 sit around uninvested. In the long run, does this really matter? Compounding is a real thing, and it’s why I plan to leave DRIP enabled, so I’m convincing myself that this is sort of a big deal.

If so, I’m debating either:

Opening a taxable account with Vanguard and using VTWAX instead (two extra basis points doesn’t bother me compared to the convenience of automating things)

Or

Opening an account with M1 or Fidelity where I can buy fractions of VT.

Has anyone else had similar thoughts, or have anything to share that might help me make a decision? I also use Schwab’s checking and have been with them for over a decade. I only have a small gain right now with a few thousand invested and could easily sell and move brokers as cash without much of a real tax penalty.
At the dollar value you mention, the financial annual impact is negligible even in the long-term. It is just a matter of convenience and personal preference. Stated differently, how much do you value convenience?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
sam1838
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Re: Do fractional ETF shares really matter?

Post by sam1838 »

I learned more about how fractional shares work in this thread so thank you.

I went from mutual funds at Vanguard to ETFs somewhere else back to mutual funds at Vanguard. Having to pull out my phone once a month to buy a certain amount at a certain time is just too annoying, compared to when I'm checking my accounts at the end of the month simply entering how much I want to buy, clicking buy, and not looking at it until the next month.
Cope
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Re: Do fractional ETF shares really matter?

Post by Cope »

I went the M1 Finance route. Automated fractional ETF shares. Set it and forget it.
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