One of the easiest ways to buy stocks is through an online stock broker. By opening an online brokerage account, investors can typically buy and sell stocks for less than $20 per trade. Some online brokers even offer trades for less than $5 per transaction.
While low cost commissions are a great way to limit investment expenses, they can still add up for small investors. For example, let’s say you have $250 you want to invest into a stock. Even if your online discount broker only charges $5 per trade, that is 2% of your total investment spent on commission. If you are paying $10 a trade, that is 4% of your investment and $20 commission is 8%!
As a dividend income investor, I am focused on limiting my expenses whenever possible. Spending an extra 2% on fees and commissions wipes out a 2% annual dividend return on investment. These added costs are just not acceptable to me, which is why I searched for an alternative.
Can You Buy Stocks Online Without a Broker?
If you are a small time investor like me, then you may be interested in learning that you can buy stocks online without a broker. Whether you want to save on investment costs, or you just don’t like letting your broker control your money – there is an alternative.
Two ways to invest in a stock without a broker that I use include – Direct Stock Purchase Plans (DSPP) and certain types of Dividend Reinvestment Plans (DRIP). Both of these plans are established directly through the company you plan to invest in or through a third party transfer agent like Computershare Investor Services.
I have bought company shares of stock using both direct stock purchase plans as well as dividend reinvestment plans to help limit my costs. For example, each month I automatically invest $50 into Clorox (CLX) stock using their DSPP which is administered by Computershare. I also invest $50 into Cincinnati Financial (CINF) through the company’s DSPP administered by the company itself. Each purchase of CLX and CINF is commission free, which helps me keep more of my income I earn from dividends.
To learn more about these two different options, please read – How to Buy Stocks Online Without a Broker.
It is important to note that not all DSPP or DRIP plans are commission free. However, the costs and fees charged directly by a company or from a transfer agent may still be lower than using an online broker. If you want to cut down on investment expenses, make sure you research alternatives to investing with a broker.
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