Four Things Investors Should Know About Stock Splits

This week, Craig Siminski, of CMS Retirement Income Planning, shares an article discussing the basics of what stock splits are, and what effect they might have on your investment portfolio:

In 2020, three companies in the S&P 500 index announced plans for stock share splits, down from 102 companies in 1997 and seven in 2016.  As an investor, you may wonder what a stock split is and how it might affect your portfolio. Although splitting stock shares has been much less common in recent years, it’s usually newsworthy when a high-profile company announces a planned split.

1. What is a stock split?

A company may decide to lower the price of its stock by splitting each outstanding share into more than one share. With a traditional stock split, more shares are available, but the total value of all the shares (the company’s stock market capitalization) remains the same.

For example, if a company announces a 2-for-1 split and you owned one share worth $100, you would own two shares worth $50 each.

2. Why do companies split their stock?

Typically, stock splits occur when the price of individual shares has risen to a level that might discourage potential investors.

More affordable share prices are thought to improve the liquidity, or the ease with which shares are bought and sold. Companies may also split stock to…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 22 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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