How to Buy Tesla for the Cost of a Penny Stock

Many people are interested in putting money into Tesla (TSLA -1.40%). The company is known as one of the most innovative businesses out there, and given the increasing popularity of electric vehicles, it could end up being a very sensible addition to your portfolio.

But there may be one thing getting in the way of investing in Tesla — money. On July 22, Tesla was trading at almost $820 a share. That’s down considerably from the company’s 52-week high of $1,243. But still, $820 is a lot of money, and you may be limited in funds.

Or it may be that you have $820 to work with, but you’re hesitant to sink that much cash into a single share of stock when there are other companies on your watchlist you’re looking to scoop up. If that’s the case, here’s some good news. You can invest in Tesla at the same cost as buying a penny stock. All you need to do is purchase shares on a fractional basis.

The upside of fractional shares

For years, investors were limited to buying shares of stock in whole increments. But these days, a growing number of brokerages are making fractional shares available to investors. And if you’d rather not spend $820 on a single share of Tesla but want to own a piece of the company, you have the option to spend a lot less.

You may decide you only want to put $200 into Tesla and see where that leads you. In that case, based on the aforementioned $820 share price, you’d be looking at roughly a quarter of a share.

But you don’t even have to spend that much if you don’t want to. You can conceivably buy Tesla for as little as $5. Granted, you’ll own a very small piece of a share at that point, but if that’s the route you want to take, so be it. That’s the beauty of fractional shares.

Not only do fractional shares give you more options as an investor, but they can also mean a greater amount of diversity in your portfolio. And that’s important, because a portfolio that’s well-diversified could not only perform well through the years, but also avoid extreme losses during periods of stock market volatility.

Should you buy Tesla on a fractional basis — or at all?

The less money you put into Tesla, or any stock for that matter, the less upside you get if the company performs well and its share price soars. But if you can’t swing a full share of Tesla right now, or you don’t have the desire to spend the money on a full share, then it pays to consider investing in the company on a fractional basis if it’s a business you believe in.

The latter point is important, though. Tesla tends to get a lot of press, and its products may be desirable to you as a car enthusiast, but those factors alone don’t make it a solid business. Before you put any amount of money into Tesla stock, take some time to read up on its finances and outlook.

Granted, if you’re only going to put a few dollars into Tesla, then you may not even want to take the time to research it. And for a $5 buy-in, it’s pretty reasonable to just throw caution to the wind and see what happens. But if you’re thinking of putting a more substantial amount of money into Tesla, then it’s important to do some digging rather than diving on in.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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