If you’ve stayed away from making stock market investments fearing the high brokerage costs associated with online brokerage accounts, you may want to consider purchasing stocks through a company’s direct stock purchase plan. Wondering what direct stock purchase plans are and how to go about buying shares through this method? Keep reading!
What is a direct stock purchase plan?
Many profitable companies offer direct stock purchase plans that allow investors to purchase their shares directly through a particular transfer agent, rather than go through a broker. This essentially helps you save money since you don’t have to pay brokerage fees. Keep in mind that not all listed companies offer direct stock purchase plans, but you will likely find a good amount of options.
Features of direct stock purchase plans
- Direct stock purchase plans allow you to make smaller investments. If your investment amount doesn’t get you a whole share, you will still get a fraction of the share on which you will be able to earn dividends.
- The minimum investment amount can vary between $25 and $2,500.
- You can choose to reinvest the dividends you earn.
- Purchases can be scheduled either on a weekly or monthly basis, thus helping you take advantage of dollar-cost averaging.
- Although they may be more cost-effective in comparison to brokerage accounts, even direct stock purchase plans have certain associated fees that you will need to pay.
How to invest in direct stock purchase plans
Every company that offers a direct stock purchase plan will have a slightly different system to administer its plan. So, if you are interested in investing in a company’s stock through its direct stock purchase plan, it’s best that you get in touch with the investor relations department of the company.
The benefit of opting for a direct stock purchase plan is that it is more simple and cost-effective. However, keep in mind that a number of brokerage firms, today, have lowered their commissions. What’s more, if you intend to make frequent trades, you may find that a brokerage firm offers more convenience since you will likely be able to perform your trades through the mobile app or the website with just a few clicks.