At Moola we build your portfolio using ETFs (Exchange Traded Funds). In your portfolio, you will have many different ETFs that each give you exposure to different countries such as the UK or US and different asset classes such as bonds, stocks and commodities. This enables us to build you a globally diversified portfolio consisting of stocks and bonds from all over the world, not just the UK. This helps reduce the overall risk of your portfolio.
Using Multiple ETFs To Diversify
To make this globally diversified portfolio we use over 10 different ETFs. ETFs can cost anywhere from £2 up to £200 and even higher. Traditionally if you wanted to buy an ETF you would have to buy a whole number of shares of it. For example, you could buy 1 or 2 or 10 shares. A single share of a UK Equities ETF could cost £109 so if you wanted to buy two shares it would cost £218.
How Fractional Trading helps
If you were to buy varying amounts of full shares of over 10 different ETFs to build a portfolio it could end up costing quite a lot to build the portfolio. You would not be able to create a portfolio from as little as £50 as some ETFs on their own cost more than this. This is where fractional trading helps. With fractional trading it allows us to buy or sell a part or “fraction” of a share of an ETF. We can buy a ½ or ¼ of a share of an ETF. We can even buy as little as 1/10,000 of a share of an ETF if we need to.
Rather than buying a whole share of the UK Equities ETF we could now buy ¼ a share of it. This would cost £27.25 (1/4 * £109). We can also buy over 1 share, for example we could buy 1½ shares which would cost £163.50. With fractional trading we can now build a low cost globally diversified portfolio from as little as £50.
The second part of this blog post will show how we can do this and what fractional trading means for investors with Moola.