Find yourself with a bit of extra cash? You could splurge on something you’ve been eyeing up, stuff it in savings accounts for a rainy day, or you could invest it! The thought of your little nest egg growing to cover far more than a rainy day is very appealing. But does that mean you have to find a broker, sit through a meeting, take their recommendation, share your earnings, and hope for the best? Read on to find out!
Just the Nuggets
- With or without a broker, you can definitely buy stocks and start your investing journey.
- Not all companies allow investors to buy stocks directly from them.
- Other than the $0 Commission Brokerage Account which is considered to be the best option, you can buy stocks without a broker through a Transfer Agent, Direct Stock Purchase Plan (DSPP), Dividend Reinvestment Plan (DRIP), Company Stock Purchase Plan (SPP), or Company Stock Option Purchase Plan (SOPP).
- You can benefit from investing without using a broker, but just like any other decision, it has its own drawbacks.
Do You Need a Broker to Invest in Stocks?
While the simple answer is NO, you do have to make some decisions and educate yourself before you start investing. There are a few basic ways to buy stocks without a broker. While each option has its own appeal, one option outweighs the rest when it comes to simplicity and ease of entering the market. You start there.
If you want the fast and simple route, your best bet is to use a $0 Commission Brokerage Account. Sometimes, fast and simple can have a negative connotation when it comes to making a decision. But in this case, it’s popular for a reason, and the technology at your fingertips is what makes it easy.
A brokerage firm technically houses this account, but you will manage the account yourself. You’ll make all the calls when it comes to trading your hard-earned cash for share certificates. You’ll be calling all the shots when it comes to what to buy and when to sell. In short, you won’t be using a broker in a traditional sense where you’d meet and pay them for their services.
Anyone with available funds can open a brokerage account and deposit funds. It’s much like opening a checking account, and you can even do it online by connecting an existing bank account to transfer the funds you’d like to invest. In a few different fashions, you can buy stocks directly from a publicly-traded company. These other options completely remove the broker.
Do All Companies Allow Purchases Without Brokers?
The no-commission brokerage route is appealing to most and very feasible. But back to the idea of purchasing stocks directly from companies—it’s true, the large majority of stocks can be purchased directly, but NOT ALL choose to provide this option. You’ll need to do some research; your best bet is to review companies’ investor relations websites.
You can easily find various lists online of those companies, but these lists are not fully comprehensive. Despite that, they’re a great starting point to get the ball rolling on where to begin your research.
Direct Stock Purchase Plans (DSPP) are the most common and formal methods of purchasing stocks directly from companies.
Wondering which companies offer such plans? This list is not inclusive, but it gives you an idea of the array of those companies.
- Exxon Mobil
- Campbell Soup
- Home Depot
- WEC Energy Group
- American Express
- Ford Motor Company
- Intel Corporation
- Advanced Auto Parts
The $0 Commission Brokerage Account is a great option, but there are several other choices left to explore—which truly eliminate the brokerage firms.
- Utilize a Transfer Agent.
- Take advantage of Direct Stock Purchase Plans (DSPP).
- Enroll in a Dividend Reinvestment Plan (DRIP).
- Use your Company Stock Purchase Plan (SPP).
- Use your Company Stock Option Purchase Plan (SOPP).
Just because the no-commission brokerage plan is widely advertised and gaining in popularity, you shouldn’t rule out these other options. You’ve likely heard of various employers offering stock options as employee benefits. In this scenario, willing employees purchase the company stocks on a one-time or ongoing basis straight from their paychecks.
But what if you want to buy stocks directly from companies you don’t work for?
Review all the following options to determine which are available to you. Once you know your personal options, you can easily weigh their pros and cons.
The Ins and Outs of Each Method
Each form of buying stocks without a broker has its own process. This guide will help you analyze which option best suits your investing goals.
$0 Commission Brokerage Account
Before you dive into dividends, you need to determine where to open your brokerage account. As a few industry leaders began offering $0 commissions, others quickly followed suit to remain competitive. Today, there are many places to open a brokerage account to begin buying stocks with ease, without naming a personal broker.
What’s important to you?
Depending on how much you want to put into the stock market, you need to compare investment minimums.
Should you check in on your earnings regularly?
Especially in the beginning, it’s hard not to!
Should you log in from your desktop or while you’re on the go?
Take a look at their websites and their apps. While one may want extensive details at their fingertips, you may prefer a simple dashboard with the highlights.
Don’t forget about other fees.
$0 commission does not necessarily mean you’re free from fees. The term used varies between companies. Overall, you want to understand the expense ratio associated with your buying and selling decisions.
Expense ratio is the total fund cost divided by total fund assets. You should shoot for < 1%. This means if you invest $1,000 when there’s a 0.5% expense ratio, you will pay $5 in fees each year. Not bad! But it can come as a surprise to those who simply see $0 commission and believe there will be $0 fees.
New investors can get caught up in buying and selling to see a quick gain on their money. But forgotten transaction fees can quickly eat into the small profits you made from flipping stocks. If you’re charged for every sale of stock, you need to compare your realized gains and your incurred fees.
Start looking around. Here’s a list of the top $0 commission brokerage sites for you to compare.
- TD Ameritrade
- Interactive Brokers
- You Invest by JP Morgan
- Ally Invest
- M1 Finance
A transfer agent acts as a stock manager, who handles the buying and selling along with maintaining ownership records. All transactions related to the stocks purchased through the agent company go through the transfer agent. Stock splits and dividend payments are examples of these transactions. Computershare and Equiniti are major transfer agents.
It’s important to remember that the offerings shown on a transfer agent’s website are those they represent. This means no transfer agent website should be used to obtain a full list of companies selling stocks without a broker.
How to Get Started
- Select a transfer agent. Visit their website to review their portfolio of stock options—a list of readily available companies you can invest in.
- Review the company you want to purchase from. Review minimum investments and fees.
- Determine if this is a one-time buy or if you’d like to set up a recurring investment.
- From here, the website will guide you through the steps of opening the account and making a stock purchase.
- You’ll need to supply your personal information, SSN, and bank account information.
- Complete the transaction to make your investment!
Direct Stock Purchase Plan (DSPP)
At first glance, it may seem cumbersome to purchase stocks directly, especially if your goal is to invest in various companies or industries. But there are benefits such as lower fees and occasional discounts—two advantages sure to perk up the ears of any investor.
Companies have two options when it comes to selling stocks directly.
- Direct sale. The company handles all stock transactions directly—meaning no middlemen involved.
- Through a third party. Offering stocks is a big task. So companies often opt to utilize a transfer agent to handle all the transactions and money associated with them, as well as to manage their stocks in-house by conducting transactions directly between the investor and retail investor.
How to Get Started
- Determine a company you want to invest in.
- Visit its investor relations website. Check out their FAQs page, or simply search direct stock purchase plan.
- From here, you will be guided as to whether a stock purchase can be made directly on their website or if they use a transfer agent.
- If they use a transfer agent, you’ll need to proceed to their specified transfer agent’s website to complete your stock purchase.
- If a DSPP is offered, step-by-step directions are provided to set up an account and make your stock purchase.
While a DSPP is a common stock option for employees of publicly-traded companies, don’t be misguided into thinking this option is only limited to them. Many of these companies allow any investor to buy stocks directly from them without a broker.
Dividend Reinvestment Plan (DRIP)
Payouts, like dividends, often sit in your investment account as cash and can be dormant if left forgotten. As an automatic reinvestment strategy, DRIP puts that money right back to work and allows you to compound your dividends into additional stocks.
In the most common application, you need to be an existing shareholder. This makes sense as you won’t have dividends to reinvest if you have no dividend stocks previously purchased.
How to Get Started
- At some point during your account setup, you’ll be presented with the option to enroll in a DRIP (if available).
- Complete the enrollment process associated with the stocks you already own.
- With a DRIP in place, the investment will happen automatically.
- If you forgo the option or if the option is not available, your earnings outside of stock gains will either remain in your account as investable cash or be sent to you in the form of a bank transfer or check.
Company Stock Purchase Plan (SPP)
It’s important to learn about company stock options when reviewing your company benefits. If you work for a publicly-traded company, your employer will inform you if they offer an SPP. It is considered a benefit because, in this plan, the stocks are offered at a discount to employees. Company SPPs are often very user-friendly.
How to Get Started
- Inform your Benefits Coordinator that you’re interested in their SPP.
- Determine the amount to be invested. It is typically based on a percentage of your pay or pre-determined dollar amount you set.
- The funds are deducted from your payroll and automatically invested into new shares of company stock.
- Your company uses the funds set aside for the SPP to buy company stocks on your behalf. Even if you leave the company, the stocks remain yours.
- If you leave the company, your benefit of purchasing more will likely end.
Allocating funds to an SPP is a good investment. You are more likely to see a higher return on an SPP than on employer retirement savings plans like a 401k. Many companies even offer these stocks at a discount from the publicly-traded value—the savings can be up to 15% (although not guaranteed).
Company Stock Option Purchase Plan (SOPP)
An SOPP is another way to buy stocks directly from the company you work for.
Stock options are granted rights to purchase stocks in a given period in the future (vesting period) at the exercise price—usually, the fair market value of stocks at the date options are granted. They can only be used or exercised once they vest, usually when stated requirements are met—performance goals or continued service, depending on the company. These options are to be held for a specified period of time, after which they expire and are not exercisable anymore.
You’ll benefit from this plan if you purchase at such a time when the stocks have increased in value—when the fair market value of stocks at the time of purchase is greater than the exercise price. The difference between them is the gain called the spread.
In a sense, you bought the stocks at a discounted price. You’ll only realize the gain if you sell the stocks. Of course, options are rights—not obligations to buy—so you may not exercise if the stocks do not increase in value.
How to Get Started
- At some point during your employment or once you’re hired, you’ll be presented with your employee benefits—especially SOPP, if offered.
- Communicate with your Benefits Coordinator regarding the terms of your plan and also every time you want to exercise your options. Make sure to observe or ask if the vesting period has already come.
- Follow all the steps laid out by the company associated with the purchase of stocks using your options.
Review your plan carefully as selling your company shares may come with restrictions—they cannot be sold in a traditional sense. When the price rises, a call to action may be executed where you as the stockholder will decide if you’re selling or holding.
Benefits and Drawbacks
Like any investment strategy, investing without a broker has its benefits and drawbacks. It may seem you’d have greater flexibility and savings by dropping the middle man, but that isn’t always the case if you’re not making educated decisions. Today’s investors often want unlimited options and fast transaction time without having to deal with cumbersome processes. These thoughts are leading investors to utilize $0 Commission Brokerage Accounts so they can manage the account themselves with relatively low fees and buy and sell with ease.
- Fewer fees. Because middlemen are excluded and the companies want to encourage investing, you as the investor are often rewarded in the form of fewer fees.
- Discounts. These are only found when not working with a brokerage firm. While discounts are not guaranteed, they can have a significant positive impact on your overall gains if they are offered to you.
- Flexibility. Employer plans provide investors with flexibility and are seen as a positive benefit, especially when the company is doing well. These benefits are maximized by those who are interested in staying long-term with their employer.
- Less liquidity. Investments made without a broker are often less liquid. Selling your stocks is a process, but with a broker, it’s simply a decision and a few keystrokes.
- More burden. If you’re purchasing stocks from multiple companies, you may be required to open accounts in several locations with the individual companies or varying trade agents.
- Declining offers. With the popularity of $0 commission brokerage accounts, the offerings elsewhere are on the decline. In many cases, the benefits of the no-commission brokerage accounts are incredibly competitive compared to other non-broker buying options.
- Less availability. As discussed, not all non-broker stock buying options are open to everyone. If you don’t work for a publicly-traded company, some of the options are automatically unavailable to you.
Whether they are your favorite companies or you simply have reason to believe in their future financial performance, you have options on buying stock. While the quick and easy options are always at your fingertips, as discovered, other options may be more lucrative.
Whichever option you determine best, you can confidently proceed with buying stocks without a broker if you’re willing to do your homework. With smart moves and a bit of patience, your nest egg will flourish. Start today with a focus on a pretty payout down the road.