Is it possible to buy stocks without a broker? Why shouldn’t be? Here is how to do that.
By Guy Avtalyon
Buying stock without a broker offers some advantages and disadvantages. Young investors are worried about investing in the stock market.
The financial crisis of 2008 strongly disturbed our formative professional years. We can still feel its specter lingers a decade later. Only 33% of millennials own stock, according to a 2016 Bankrate survey.
The other survey, a 2015 Harvard University survey found that just 14 percent of millennials trust Wall Street.
As any good stockbroker or experienced investor can tell you, you can find bad brokers more often than the good one.
Being “bad brokers” means those who put their own interests above that of their clients. We have a list of bad reputation brokers here on Traders Paradise’s wall of shame.
So, we must consider how to buy stock without a broker.
However, that worst brokers do this in a perfectly legal way, by causing desire and weaknesses to their clients’.
How do they do that?
Here are three main practices that bad stockbrokers practice. They claim to their clients that aiming for stability rather than growth. Wrong!
Usually, they force clients to obtain an income from two different sources, typically in an illicit way. Also, some of them are emphasizing low-risk, low-return, high-fee structured products in client accounts.
That’s why many new investors ask how to buy stock without a broker.
Because of the lack of confidence in brokers, many millennials don’t have the startup cash to fund an IRA or a brokerage account. That typically requires either automatic monthly payments or a minimum investment of around $1,000-2,500, plus commission fees of around $4-7 for every trade.
For those people who want to go down this path to business ownership, one option can be to check out direct investment plans.
But it is with varying degrees of success. Of course, there is no requirement that you have to work with a broker to invest in stocks or particularly equity funds.
Buying stock without a broker offers some advantages and disadvantages.
You will need to measure them based on your personal situation. But our goal is to provide you a good handle on how to invest without a broker.
But it’s up to you to make a decision about whether such an approach is appropriate for you. You have to know your unique circumstances and preferences. Because there is no unique solution for everyone.
Let’s say, you had a broker but you noticed that your broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stockbroker jargon is simply a shorthand that brokers use amongst themselves. They use them to refer to familiar situations without having to go into any detail on the underlying concept.
Your head is going to explode hearing every time some strange words that cause suspicions.
But investing can be simpler if you buy stock without a broker. Just by investing in shares through a company’s direct stock purchase plan.
The first and easiest way to buy stocks without a broker
It is when companies, often blue chips, fund a special type of program. It is called a DSPP or Direct Stock Purchase Plan.
The main goal of these plans originally was designed as a way for businesses to let smaller investors buy ownership directly from the company. In the beginning, they were working through a transfer agent or plan administrator. They still do the same. Most plans allow investors to buy stock without a broker if they agree to either have an amount taken out of their checking or savings account every month for six months. Often $50 is the acceptable minimum. The other way is to make a one-time purchase, which will cost you $250 or $500.
These plans are surely not as comfortable as getting a broker. You can’t just buy and sell a variety of company stocks at any time, for instance. Plus, you won’t have a diverse portfolio if you only own stock from a few companies. Moreover, with some plans, you won’t even escape fees. So, you have to be careful about what you sign up for.
This means trades without commission
But we have to say, direct stock plans are a good way to experiment with the stock market without putting too much money into the game.
Ordinarily, the plan administrators use your cash to buy shares of the company. It can be on the open market or freshly issued from the business itself, on predetermined dates. The average cost of the purchases is weighed out.
Also, they can use some other methodology to equalize the cost among investors. And the direct stock purchase plan statement arrives quarterly. All with a listing of the number of shares you own and dividends you receive.
Some direct stock purchase plans trades without commission. Others charge small fees. Usually $1 or $2 plus a few cents per share, for each purchase. A larger fee, about $15 and a few cents more per share, for a sale. This is a lot lower than what you have to pay at a full-service broker.
Buy stock without a broker by taking advantage of the dividend reinvestment program
In this way, you can add additional shares to your holdings.
This means to enroll in a stock’s dividend reinvestment program or DRIP. DRIPs provide you to take cash dividends, paid out by the company you partially own. And you may plow them back into buying more shares, charging either nominal fees or nothing at all. It depends upon the individual plan.
Have this on your mind. For a typical stock, that’s a lot of transactions over 25 or 50 years on which you aren’t paying commissions. The typical stock may pay out a dividend four times per year. So, count! DRIPs usually come with cash investment options that resemble direct stock purchase plans.
This opportunity means you can regularly have money withdrawn from your account, or send in one-time payments whenever you like.
A lot of long-term investors have become skilled at building wealth through these types of accounts. Buying stock without a broker for years, even decades is a very nice way. You must be heard stories about some housekeeper who left behind $5 million opulence.
They did it just on the way we said above.
You can buy stock without a broker by obtaining a single share through a specialized gifting service
Unfortunately, the financial industry’s decision is to move away from paper stock certificates. And this has become a bit shaky.
But, up until recently, you could use companies that allowed you to buy a single share of stock to get your name on a corporate shareholder list.
Hundreds of companies offer these plans, but each has its own rules for eligibility. It’s normal to be careful about investing in stocks. But some estimates that the average millennial would lose about $3.3 million in retirement savings by avoiding investing completely. Direct stock plans are an easy way to learn the basics and establish a portfolio.
All without spending money, time, and nerves on brokers. Anyway, buying a stock without a broker may be a clever move for investors.
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