Thoughts On Fractional Investing

dairy milk chocolate

Imagine you’re at your favourite local supermarket (Woolworths, Coles, IGA, ALDI, Costco, LIDL) and decide, I only feel like one square of Cadbury Dairy Milk Chocolate today.

In your haste, you go to the utensil department and un-pack a knife to carefully cut one square out of the 20 square pack.

You undertake this cutting procedure, leaving the rest of the packet for some other clever buyer like yourself.

You walk to the cashier and say “I would like to pay for my one square please” (with a slightly cheeky grin).

”I work that out to be $0.20, as it’s 1/20 of the $4 packet”.

The concept of fractional investment in theory is a good one.

In practice it isn’t necessarily suited to achieve the riches you crave.

You know you’ll want more chocolate in an hour.

Namely when an investment of $100 or even $1,000 is invested in a fractional investment, it’s hard to see the true long-term benefits for the investor.

The weight of benefit seems to rest with the company offering the fractional investment.

Property has been a great investment for so many because of the large numbers it deals with.

Magnifying potential gains in times of boom.

These are compounded through high gearing leverage resulting in returns otherwise unachievable with many investors cash reserves.

Picture many other asset classes you invest $100,000 + the banks money to own $1,000,000 worth of asset.

At the centre of this discussion is whether owning a small bit of something is worthwhile?

Does it make sense to own $1,000 worth of a big pie?

For some this is your entire life savings and it may well give you that sense of hope.

Hope is great.

Hope is needed.

But will a 5% ($50) or even 10% ($100) return on $1,000 really change your future?

Objectively speaking it makes more sense to play the longer game and save harder.

Save like you need to save for something important.

The companies offering the fractional investment make money from management fees and sales fees, which is totally fine.

Otherwise it wouldn’t be a viable business model and you wouldn’t have the chance to take part.

The underlying question is would you rather invest $1,000 in 100 individual fractional investments or $100,000 in one $1,000,000 property you totally own?