Stock Splits

Aug 27, 2020 11:37:26 AM / by InvestorKeep



Recently the news has featured stories on stock splits by well-known companies Apple and Tesla. This often happens when companies want to make shares more affordable for smaller investors. Stock splits commonly come in 2 to 1 or 3 to 1 splits. This means for every share of stock you owned before, you now own two or three, respectively. The value of the company remains unchanged as does the value of your ownership in the company, but your number of shares grows. Stock splits are often viewed as positive events because single shares become less expensive allowing more people to invest in the stock, which can lead to a price increase.

Companies occasionally elect to do a reverse stock split. In this case instead of growing the number of shares, they are reducing them. The amount of shares outstanding is decreased but the price of each individual share increases. This is sometimes done to keep the stock from becoming a “penny stock” (a stock that trades for less than one dollar per share) which often makes a stock more volatile (which some investors avoid).

A stock split in one of your investments is a good reason to reach out to your financial professional to see if it affects the overall makeup of your portfolio.



Written by InvestorKeep

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