Many investors choose to buy and sell investments through a brokerage account. But, 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, you should be aware of the drawbacks that come with avoiding brokerage services before you abandon them completely.
According to thebalance.com, here are things you should know before buy stocks without a broker.
Direct Stock Plans (DSP)
The easiest method of buying stocks without a broker is by participating in a company’s direct stock plan (DSP). 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. Sometimes, these mandatory minimums are lower than the price of a single stock. It effectively allows investors without much capital to buy fractional shares of a company.
In addition, if you get a statement from the bank, the direct stock purchase plan issues statements with important financial information. For instance, a listing of the number of shares you own, any dividends you have received, and any purchases or sales.
Dividend Reinvestment Plans
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. Moreover, this service may be free or there may be small commission fees.
The Benefits and Drawbacks of Direct Plans
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.
That simplicity 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.
