You don’t need thousands of dollars to start investing in the stock market. In fact, for far less than $100, you can start buying stock in blue chip companies that pay dividends. What many new investors don’t realize is that stocks don’t have to be bought and sold through a stock broker.
For as little as $25 per month, investors can enroll in a direct stock purchase plan (DSPP) through the company they are investing in. Instead of investing through an online broker, shares are purchased directly from the company or third party transfer agent.
Many publicly traded companies offer these types of plans to their investors which provide several benefits to the small investor. The first advantage is that every online broker will charge a commission when you go to buy a stock. Even a $5 commission is a lot on a $100 investment. Many direct stock purchase plans offer lower commission costs to investors or in some case no costs.
Another advantage is that by buying stock directly from the company, you can usually purchase fractional shares. This is very important to investors with small amounts to invest. A $75 investment would buy 1.5 shares of stock that is trading at $50. The investor would only be allowed to buy 1 share of the stock through a broker.
Finally, investors can setup automated investment plans to buy stock each month. For as little as $25 per month (depending on the company), investors can automatically purchase whole and fractional shares of stock. Each month, the funds are withdrew from the investor’s bank account and used to purchase stock. This saves the investor time, money, and a lot of hassle.
How to Start Investing with No Money
Here are a few steps to help you get started investing with no money.
Step 1 – Review Your Monthly Budget
You have probably heard the importance of paying yourself first when it comes to your monthly budget. Investing in the stock market through a DSPP is a perfect way to start.
The first step is to figure out how much you can invest each month by looking at your budget. Maybe there is a $100 leftover each month that you want to invest, but you just don’t know where? If this is the case, then a direct stock purchase plan can be a great tool to get started.
Even if you don’t have $100 to invest, there are many companies that allow you to enroll in their DSPP for $25. I am sure you can find a way to scrounge up $25 a month if you really gave it some thought.
Remember that the hardest part to investing is getting started. You can always increase your monthly investment dollars in the future if your finances improve.
Step 2 – Conduct Stock Research
There is no point in just throwing your money at any stock, even if it is $25 a month. Make sure to conduct proper stock research, just as you would normally do if you bought through a stock broker. Look for stocks that fit your investment profile and target those first.
Day traders should stay away from these plans. If you have a short term investment strategy, then these plans are not for you. While a DSPP has many advantages, it is not as easy to buy and quickly sell stocks. If this is your strategy, stick with an online discount broker instead.
Step 3 – Look for Direct Stock Purchase Plans
Once you have your list of stocks from your research, look to see which ones offer a direct stock purchase plan. You can usually find this information on the company’s website under their investment materials. A company will either manage their plan on their own, or a plan could be managed by a third party transfer agent.
There are hundreds of companies that offer these types of plans, so you are sure to find one that fits with your investment strategy. If a company does offer a DSPP, then be sure to check out the associated costs and fees with investing. Some plans offer free trades while other plans still charge a commission or other fees.
Step 4 – Open Accounts
After your budget is setup and you know the stock(s) you plan to buy, the next step is to setup the account. Most accounts require basic demographic information, similar to a discount brokerage account. You will also need to setup your bank account information so that you can fund your purchases.
Keep in the mind that most companies actually use third party transfer agents (i.e. ComputerShare) to manage their plans. There are a few that manage their own plans. The company’s website should provide this information to investors.
Step 5 – Setup Automated Investment Plan
The final step is to setup an automated investment plan (if offered) for the stocks you wish to invest in. As you are conducting your stock research, look to see if the company offers an automated investment option. You will need to provide your bank checking or savings account information in order to setup this option.
Once setup, the AIP will automatically deduct the set amount (i.e. $25) each month from the bank account you specified. This deduction will continue to come out of your account each month and used to purchase more stock. If you decide to cancel the plan or change the monthly investment amount, you will need to sign into your account and make the changes.
Start Investing Today
There are no more excuses on why you can’t invest in the stock market. If you are worried about finding the funds to invest, start small by investing in a single stock at $25 per month. Once you feel more comfortable, expand your investments into a second stock and/or raise your $25 monthly investment into $50.
It doesn’t take a big chunk of money to start investing in the stock market. Taking advantage of direct stock purchase plans can provide the necessary investment tools to get started.
Do you buy stocks through an direct stock purchase plans?
Full Disclosure – At the time of this writing, I currently buy stock in Clorox (CLX) and Cincinnati Financial (CINF) every month through direct stock purchase plans.
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