How You Can Buy Stocks for Little or No Money
July 12, 2012
Investing in company stocks is a great way to earn dividends and build wealth over time. However, most brokerage houses charge several hundred dollars to invest in stocks. Even discount brokerages like E-Trade and Ameritrade want about $10 per transaction. These fees exist because you buy and sell stocks through a middle man (i.e., stock broker) when you use a brokerage house. So what can you do if you have only $25 to invest in stocks each month?
Avoid the middle man
You can actually purchase stocks for free by avoiding the middle man. Many companies offer direct stock purchase plans for little or no money. Known also as no-load stocks, they are available through many well-known companies such as Kellogg, AT&T and Verizon. You can find out which companies offer direct stock purchase plans by going to the company website and clicking on its FAQ or investor section. If the company offers such a plan, it works with a transfer agent (usually a bank) to allow direct purchase of its stock. For example, Kellogg Company (NYSE: K) offers direct stock purchase through its transfer agent Wells Fargo. You can also find out which companies offer no-load stocks through transfer agent listings such as those offered through Computershare.
Financial advantages of direct stock purchase plans
There are many financial advantages to buying stocks directly from the issuing company. To begin with, most companies that offer direct stock purchase plans allow you to make free automatic investments on a monthly basis. Thus, if you can only set aside $25 each month to buy shares of Ford, for example, $25 will be automatically deducted from your checking or savings account each month and used to buy that stock. No fees or commissions will be charged for this service. If the stock offers a dividend, you can also purchase additional shares of stock using your dividend money, and all for free. This opportunity is frequently offered through the company’s Dividend Reinvestment Program or DRIP.
Finally, if a single stock share costs $50 but you only have $25 to invest, you don’t have to wait until you have that $50; direct stock purchase plans allow you to buy fractional shares of the stock too. This is especially useful if you have only a few dollars of dividend money in your DRIP to buy additional stock; you needn’t wait until you have the full share amount in order to take advantage of those dollars.
Companies that offer direct stock purchase plans will provide information on any costs associated with enrollment, how much money is required to get you started, and the minimum monthly investment amount. If you like these terms, you can fill out the company’s investor prospectus to get started. In most cases, the prospectus will ask for your name, mailing address, Social Security number, bank account information, monthly withdrawal amount, and (if applicable) whether you want to have your dividends reinvested or paid out. Once you have filled out the necessary paperwork, it won’t be long before you too can invest in the company and watch your wealth grow.