For small investors or those just starting out, there are many discount brokerages and online investing sites to help you get start investing. Before all of these new investing firms popped up, many corporations allowed you to invest in their stock directly through them. In most cases, this was restricted to the larger firms, such as General Electric and AT&T. Surprisingly, many of these direct stock purchase plans still exist today and are a great way for you to invest in small, incremental amounts for little to no cost. And, with the internet, it makes investing in these plans that much easier!
How to Get Started
To get started investing, you are going to need a small lump sum of money, usually between $250-$500. From there, you are free to invest any amount you wish, as long as it meets the minimum. This minimum is usually around $50. Most plans also have maximum amounts you can invest annually as well, but the maximum is usually about $100,000.
The great thing about these plans is that you can buy fractional shares, which you cannot do if you invest though most online discount brokers. Additionally, you can elect to re-invest any dividends to buy more shares, also something that many online discount brokers do not allow.
When I first started investing, this was the route I took. I saved up enough money to open an account and buy shares of General Electric. Then, after doing chores around the house for my allowance, I would save the money and use it to buy more shares. It was great to be able to invest in the stock market.
Before you go clicking on the ComputerShare or the BNY Mellon link above, there are a few caveats to tell you about. The first is that not all companies use these transfer agents. Just because a company isn’t listed here, does not mean they do not offer a direct stock purchase plan. For example, Proctor & Gamble allows you to invest directly with them from their website, so be sure to visit the company website if you don’t see them on either of the sites above. You can either search for “company name + direct stock purchase plan” or go to the investor relations section of their website. Usually the information is found in the FAQs.
The second caveat is to be conscious of fees. Each company determines the fees for their plan and the fees wary widely. For example, Proctor & Gamble has virtually no fees whereas AT&T charges you set up fees, purchase fees, re-investment fees, and sales fees. Basically, it makes it not worth it to invest in the stock this way because all of those fees add up.
My recommendation is to avoid all plans with set up, purchase and re-investment fees. Sales fees are acceptable given that most are capped at a dollar amount that is not restrictive. You will find many companies that only charge a sales fee as well as some that charge no fees at all.
Overall, direct stock purchase plans are a great way for small investors or those just starting out to get into the stock market. It allows you to invest in small amounts and re-invest dividends for little or no cost. If you are looking for a way to start investing, be certain to include these plans into your comparison.