Understanding Stock Splits: A Guide for Investors

At Radius Wealth Management, we aim to make financial concepts accessible and clear. Let’s break down stock splits and why they’re worth knowing for any investor.

What Is a Stock Split?

A stock split happens when a company divides its existing shares into multiple new shares without changing its total market value. For example:

• If you own 1 share worth $100 and the company executes a 2-for-1 split, you’ll now own 2 shares worth $50 each. Your total investment value remains $100.

Why Do Companies Split Their Stock?

Companies use stock splits for various reasons, such as:

• Improved Accessibility: A lower stock price makes shares affordable to more investors.
• Psychological Appeal: Shares priced lower often seem more attractive to retail investors.
• Boosted Trading Activity: More shares available can lead to higher trading volume and liquidity.

Common Types of Stock Splits

• 2-for-1 Split: Each share becomes 2 shares. For example, 100 shares turn into 200 shares.
• 3-for-1 Split: Each share becomes 3 shares, so 100 shares become 300.
• Reverse Split: Multiple shares are combined into one, often used to increase a stock’s price.

What Should Investors Know?

Stock splits don’t alter the total value of your investment, but they can impact liquidity and trading behavior. Keep in mind:

• Your investment value remains unchanged after a split.
• Splits can make shares more liquid and accessible.
• If you trade options, their terms will adjust to reflect the split.

Real-World Examples

Well-known companies that have executed stock splits include:

• Apple: A 4-for-1 split in 2020 to attract individual investors.
• Tesla: A 5-for-1 split in 2020.
• Google (Alphabet): A 2-for-1 split in 2014.

Stock splits are a technical adjustment that doesn’t change the underlying value of your holdings. However, they often make shares more attractive and accessible, which can benefit both companies and investors.

If you’d like to discuss how stock splits might fit into your portfolio, contact Radius Wealth Management today!