Purchasing stock

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How to Start Investing in Stocks: A Beginner's Guide

While many investors choose to buy and sell investments through a brokerage account , some investors may wonder how they can buy stocks without a broker. Direct investment plans offer the brokerage alternative that those investors are seeking. If your primary investing goal is to acquire a single company's stock as directly as possible, one of these plans can help you achieve that goal, but be aware of the drawbacks that come with avoiding brokerage services before you abandon them completely.

Often, the easiest method of buying stocks without a broker is by participating in a company's direct stock plan DSP.

These plans were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company.

Investors buy-in by transferring money from their checking or savings account. The company will establish minimum investment amounts, both for the initial purchase and for any subsequent purchases.

The plan administrators batch the cash from those participating in the direct stock plan and use it to buy shares of the company at regular intervals and at the average market price. Companies may also offer a dividend reinvestment plan DRIP.

These are similar to direct stock plans, except that they automate the process of buying more stock over the years. DRIPs automatically take cash dividends paid out by the company you own and use them to buy more shares. Depending on the specifics of the plan, this service may be free or there may be small commission fees. In the U. If you are fortunate enough to have such an arrangement, DRIPs don't have as much appeal. Dividend reinvestment plans are often coupled with cash investment options that resemble direct stock purchase plans.

This gives you the ability to buy more stock whenever you want, not just the four times a year dividends are issued. The primary advantage of avoiding brokers and buying directly from a company is simplicity.

Apps and websites have significantly streamlined the broker experience, but an investor still has to choose between securities and make decisions about the type of order to place for those investments. Direct stock purchases and dividend reinvestment plans can be even more simple—just send the money to the right place and you're enrolled in the plan. Direct stock plans also allow for enhanced communication between the company and its investors.

When you invest through a brokerage, any notices from the company will come through the brokerage. For investors with a variety of investments, company notices blend together because they all appear in your inbox as a message from your brokerage, rather than the company. This could lead to some investors skipping messages altogether, potentially missing out on useful information.

By communicating directly, the company and its investors remain in better contact. Institutional investors may have access to extra benefits through direct stock purchase plans, depending on the company issuing the stock.

Special "waiver discounts" allow institutional investors to buy shares at a discount that isn't broadly advertised. The simplicity that direct plan investors enjoy is also the main disadvantage of broker alternatives. If you sign up for a Home Depot direct stock purchase plan, for example, you will only have the option to buy Home Depot stock.

An investor with a brokerage account and an investor with a direct stock plan could acquire the same Home Depot stock at the same price, but the investor with the brokerage account could also acquire any other security the brokerage services.

For traders who want to diversify and explore their options, there's no substitute for using a broker. Traditionally, direct plans have also enjoyed the benefit of commission-free, or low-commission trades, especially when compared to the costs of using a full-service broker.

However, that benefit has largely vanished in the digital era. Many brokerages—even major firms like Fidelity and Charles Schwab—have dropped their commission fees for online trades. Direct stock plans also impede an investor's ability to time trades.

Cashing out your position isn't as simple as tapping a few buttons on a brokerage app. This is fine for buy-and-hold investors who plan on holding stocks for decades. Investors who mostly care about dividends will also likely feel content with direct plans. Investors who trade often and enjoy regularly rebalancing their portfolio, on the other hand, will be frustrated by the limitations.

The Balance does not provide tax, investment, or financial services and advice. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. The Home Depot. Shareholder Service Solutions. Why Not? Charles Schwab. Fidelity Investments. Investing for Beginners Stocks. By Full Bio Follow Twitter. Joshua Kennon co-authored "The Complete Idiot's Guide to Investing, 3rd Edition" and runs his own asset management firm for the affluent.

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After evaluating a. To save on broker fees, you can buy some.

Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending. Legendary investor Warren Buffett defines investing as "…the process of laying out money now to receive more money in the future.

In order to buy stocks , you need the assistance of a stockbroker who is licensed to purchase securities on your behalf.

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page.

Five Simple Steps to Buying a Stock

While many investors choose to buy and sell investments through a brokerage account , some investors may wonder how they can buy stocks without a broker. Direct investment plans offer the brokerage alternative that those investors are seeking. If your primary investing goal is to acquire a single company's stock as directly as possible, one of these plans can help you achieve that goal, but be aware of the drawbacks that come with avoiding brokerage services before you abandon them completely. Often, the easiest method of buying stocks without a broker is by participating in a company's direct stock plan DSP. These plans were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company.

I Want to Start Buying Stocks—But Where Do I Start?

Before purchasing stock in a company, you should know some of the basic terms and strategies commonly used by investors. You should only purchase stocks based on the fundamentals of a company, such as the current stock price, company profits and market capitalization. A good investor will not purchase a stock simply because he likes a company. Good investment requires reliance on cold, hard facts. Market capitalization is the total value of the company's outstanding shares. It can be determined by multiplying all outstanding shares of stock by the current stock price. Market capitalization is an important indicator because investors can use it to determine whether a company is currently undervalued or overvalued based on the current assets and income of the company. A good sign of a strong investment is that the company makes a practice of buying back shares of its stock. If a company is regularly buying back shares of its own stock, this means the company is potentially creating larger returns for investors by reducing the total number of outstanding shares in the market. Check to see whether your targeted company buys back shares of its own stock and how often it does so.

You know you're supposed to put your savings to work "in the market," but you're not quite sure where to begin. Here's a step-by-step approach to buying stock.

Why Zacks? Learn to Be a Better Investor.

How to Invest in Stocks

Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. Advertiser partners include American Express, Chase, U. Bank, and Barclaycard, among others. Do high brokerage costs deter you from investing in stocks of financially stable, profitable companies? Once companies list on a stock exchange, they employ the services of a transfer agent, who handles all administration related to share transactions — most listed companies use Computershare to provide these services. And one of the many services Computershare provides is the administrating of direct stock purchase plans for companies who want to sell their shares to the public without engaging a stockbroker. A direct stock purchase plan allows you to buy shares of a company through its transfer agent instead of through a broker. In essence, you cut out the middleman and save yourself a pretty penny in the process. Listed below are five well-known companies that have the most active direct stock purchase plans:. Whenever you choose any investment, analyze the company and the industry carefully in terms of profitability, future outlook, and whether the investment is in line with your goals and risk tolerance. If you choose to invest in individual companies, be sure to invest across a range of industries for a diversified portfolio. All Rights Reserved. Sign in. Forgot your password?

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Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Decide how you want to invest in stocks. Open an investing account.