Buy Stocks Direct: Buying Stocks Without A Broker

June 13th, 2009

In finance, a stock represents a share in the ownership of an incorporated company. It’s an instrument that signifies an ownership position (called equity) in a corporation, and gives its owner a proportional stake in the corporation’s assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 100 shares of stock outstanding and a person owns 5 of them, then he/she owns 5% of the company.

A stock broker is an agent that executes buy and sell orders submitted by an investor. He may also offer investment advice to investors such as when and what to buy and whether to hold or sell securities. As a compensation for the services he/she provides, the broker charges a percentage of the transaction amount as a brokerage fee. Depending on where they’re located, brokers are licensed and regulated by the federal government or an overseas authority.

If you’re a beginner stock market investor, you’ve probably realized by now that there are so many choices to make that it can be overwhelming. This is where using a stock broker can come in handy. You can slowly learn about the ropes of investing, be exposed to overseas stock investments, get venture recommendations, get help managing your portfolio, and receive valuable help at the time of filing your income tax return because brokers have to keep detailed records of the buying and selling of stocks. etc. On the other hand, if you’re a seasoned investor, a broker can save on time.

Although transaction costs aren’t nearly as high as they used to be, still some people would prefer to avoid them altogether, so as to further boost the return on the money they invest in the stock market. There are alternate investment strategies available to those who want to avoid paying commissions to brokerage firms.

1.- Invest through the company’s direct stock purchase plan

More and more companies now offer direct stock purchase plans. Also called DPPs (Direct Purchase Plans), they give investors the option of buying shares of stock directly from the company, thus foregoing the broker (and his or her fee). In order for you to find out whether or not a company offers such a plan, you can visit the company’s website to get contact information so you can either send them an email or give them a call. You’ll find that most companies have an initial minimum deposit. You can work your way around that requirement, though, by agreeing to automatic monthly withdrawals from your checking or savings account. This way, your stock purchases are automatically carried out each month by the company, which debits your bank account for a set amount every month. This is an easy and relatively painless way to invest that uses the technique called dollar cost averaging.

2.- Take advantage of the DRIP program’s cash investment option

Some companies may not offer a direct purchase plan but instead may have a dividend reinvestment plan or DRIP. Under such a plan, you have the option to send a check in any amount over 10 or 25 dollars, to the program administrator. Upon receiving the check, that person will purchase additional shares on your behalf. You even enjoy the benefit of being able to buy fractional shares (a fractional share is less than one share of stock, for example one-third or one-half a share). However, you have to already own at least one share of the corporation before you can enroll in this program.

3. Buy a single share through a specialized service

Companies such as ‘One Share’ offer the unique service of allowing you to buy a single, framed share of stock in many leading corporations. Once the share is in possession of the investor, he/she is then eligible to take advantage of the DRIP program, and the enrollment paperwork takes only a few minutes. Once this is taken care of, the investor can start beefing up his/her portfolio consisting of the companies they prefer.

4. Buy mutual funds directly from the fund company

You can buy mutual funds directly from the mutual fund company without going through a stock broker or using a brokerage at all. After researching which funds from which mutual fund company you want to buy, call the mutual fund company or visit their website to buy directly from them. In most cases, you won’t pay any sales commission at all when you buy funds like this (sales commissions that you would pay had you gone through a broker or brokerage).

Eliminating the broker opens up a lot of freedom for you as an investor and puts all of the control in your hands. The downside, of course, is that there is no one to blame bad investments on but yourself.