This Brokerage Account Feature Could Help You Protect Your Portfolio

Your goal as an investor is to grow wealth over time. You may also be eager to limit your chances of taking losses during a stock market crash.

Having a diversified portfolio could help you achieve both objectives. In fact, The Motley Fool's advice is to assemble a portfolio that consists of at least 25 different stocks. Similarly, you could load up on broad market index funds or ETFs (exchange-traded funds), which means you're basically buying a collection of stocks instead of choosing them individually.

But one specific brokerage account feature could make it easier to diversify your portfolio and protect yourself over time. So if yours doesn't offer it, it may be time to make a switch.

The importance of fractional-share investing

For years, if you wanted to own shares of a given company, you had to commit to buying them in full. This means that if you wanted to own shares of a company that were trading at $500 apiece, you needed a minimum of $500 to add that company to your portfolio.

With fractional-share investing, you can put money into stocks even if a full share is out of reach financially. And that could help you branch out more in your portfolio.

Let's say you don't have any electric vehicle stocks in your portfolio and you're interested in owning shares of Tesla, which, as of this writing, are trading for about $167. It may be that you only have $80 to invest with right now. If that's the case, and your brokerage account allows you to invest fractionally, you can spend your $80 on roughly half a share of Tesla rather than waiting to have the money available for a complete share.

In fact, the nice thing about fractional investing is that you don't even have to concern yourself with share prices. Let's say you have $50 to add to your brokerage account. You could simply put in an order to buy $50 worth of the company of your choosing -- regardless of what that translates into in terms of shares. In other words, a $50 investment might translate into 1/13 of a share of a company whose stock is on the pricier side -- and that's okay.

You should also know that when you buy shares of stock on a fractional basis, you can still benefit from the dividends they pay out. But, you'll receive a proportionate share of dividends. So if a given company pays a dividend of $4 per share and you only own a quarter of a share, you'll only get $1.

A feature worth going after

At this point, many brokerage accounts have adopted fractional-share investing. But if yours hasn't, then it may be time to find a new home for your assets.

The option to invest on a fractional basis could make it much easier to diversify your holdings. And that could be your ticket to protecting your portfolio during periods of volatility and ensuring that you don't lose sleep when things inevitably get rocky.