Buying stocks normally requires a broker who can execute your trade. Although it’s not easy to bypass a broker to purchase stocks, it’s certainly possible. If you’re dead set on avoiding the fees associated with a broker, your options are limited, but they do exist.
By buying stock directly through the company, you can still build an investment portfolio without having to rely on the services — or pay the fees — of a stock broker.
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You Don’t Need a Broker to Buy Stocks
To be clear, however much you might not like the idea of using a middleman, not using a stock broker does seriously limit your options for buying stocks. The global network of stock exchanges is as enormous as it is complicated, and without a broker, there’s a range of investment products you can’t access that could play an important role in a successful retirement. Not to mention, plenty of brokers can do more than just execute trades, like connect you to advisors who can offer investment advice and retirement planning support. Not to mention, there are plenty of options for online brokers or discount brokers that will help keep your fees to a minimum.
That said, if you really do want to avoid a broker, there are options.
Two Ways to Buy Stocks Without a Broker
You can buy stocks without using a broker in two basic ways, both of which rely on going directly through the company. In each case, examine the costs to be sure you’re actually saving money by skipping the broker.
1. Direct Stock Purchase Plan (DSPP)
One way to skip out on the services of a stock broker is to go straight to the source and purchase stock from where it originates: the company. Stocks represent ownership of a company, so the company in question is really the one that ultimately controls the supply of available shares, in a certain sense.
And many companies offer direct purchase programs for their stock, allowing you to buy shares directly from the company. With the help of a transfer agent — a company hired to maintain records of shareholders — the companies will sell directly to investors. You can even set up a recurring monthly deposit to continue purchasing a set value of stock over time.
Some downsides do exist with this method, though. For starters, not every company has a DSPP available, so sticking solely to buying stock straight from the company will limit your options to a relatively small collection of mostly blue-chip stocks and can result in a portfolio that’s lacking in diversification.
You should also be very careful to examine the options when it comes to what sort of fees the transfer agent might charge. The fee structure is going to be different from company to company, and you could easily find yourself paying more to not use a broker, limiting your options needlessly.
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2. Dividend Reinvestment Programs (DRIP)
When it comes to a moderate one-time investment that can grow over time into something much more substantial, a DRIP is among the best options. A DRIP is similar to a DSPP in that you’re purchasing stock directly from the company. Its most important feature, though, is that the company’s dividends are issued in the form of more stock, rather than cash.
Dividends are a way companies share profits with investors, and they help provide value for a stock by creating a steady income stream to bolster any growth in its shares. If you’re willing to forego that short-term cash, however, you can compound the rate your investment grows at by reinvesting those dividends directly in the form of more stock.
The more stock you have, the larger your dividend becomes, meaning you’ll get even more stock with each dividend, creating a rolling snowball effect that can result in significant growth over time, provided you pick the right company.
In addition, many DRIP programs are not only commission-free, but they will also offer a discount of 1 to 10 percent off the going market price for their company’s shares, meaning you’ll be getting a steep discount over using a broker.
Some drawbacks come with selecting a DRIP, though. For starters, there’s a limited number of companies that offer DRIPs, so you might not be able to engage in a DRIP for the stock you would prefer. And that’s especially troubling when you consider that a DRIP, by definition, means putting all your eggs in one basket. As great as a DRIP can be with a successful company, it’s something of a disaster if you pick a company that ends up in decline.
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Brokers Are Often Worth It, but They’re Not Necessary
The value of having the right broker can be high, giving you access to the entire universe of investable stocks — or at least close to it. What’s more, they usually offer up a wide range of tools and resources that can help you make any decisions about investing.
But if paying fees to your broker isn’t for you, you have some limited options for buying stocks without having to use a broker. And, if you’re only interested in investing in companies that have DSPP and/or DRIP programs, you could save significant money on the investments you wanted to make anyway by going straight through the companies instead of through a traditional or online broker.
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