Wondering if you really need a broker to buy stocks? The good news is, you don’t. Thanks to modern tools and programs, there are several ways to invest on your own. Whether you’re looking for direct stock purchases, commission-free trading apps or dividend reinvestment plans, you’ve got plenty of options.
Do You Need a Broker To Buy Stocks? Here’s What To Know
Today there are several ways to buy stocks without hiring a traditional broker. Here are some options to know:
1. Direct Stock Purchase Plan
Some companies allow you to buy their stock directly — no brokerage needed. You’ll work with a transfer agent to buy shares and can automate monthly purchases.
However, not all companies offer DSPPs and your choices may be limited to larger, blue-chip stocks. Plus, some transfer agents also charge fees, so be careful when examining your options.
2. Dividend Reinvestment Programs
DRIPs automatically reinvest dividends by purchasing more shares, helping your investment grow through compounding.
Compounding in Action
The more stock you have, the larger your DRIP dividend becomes — leading to even more stock with each payout.
This compounding effect can create a rolling snowball effect. If you pick the right company, this can result in significant growth over time.
Many DRIPs are fee-free and even offer discounted share prices. The downside? There are a limited number of companies that offer DRIPs. This is 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.
3. Online Platforms and Trading Apps
Self-directed trading is the most popular way to buy stocks without a stockbroker. With this option, you trade on your own through an online platform provided by a brokerage such as Fidelity, Robinhood or E*TRADE.
Here are some key points to know:
- Some platforms, like Robinhood, are 100% online and only allow self-directed trading.
- Other platforms, like Fidelity, are full-service brokerages that offer self-directed trading as one of several ways to trade.
- You’ll have to open an account at your brokerage of choice.
- With an account, you’ll have access to educational resources and investment information to help you choose and execute your trades.
- Accounts are usually free, and most brokerages offer commission-free trades.
Pros and Cons of Using a Broker To Buy Stocks
Stockbrokers undergo extensive trading as part of their licensing process. They have a breadth and depth of knowledge that’s difficult for individual investors to match. That expertise is the source of both the pros and cons of using a broker to buy stocks.
| Pros | Cons |
|---|---|
| Brokers make custom recommendations based on an analysis of your financial goals, risk tolerance and current finances. | Broker fees add up quickly. |
| Having a broker to execute your trades saves you the time needed to research securities, conduct your own trades and monitor your portfolio. | You might need a minimum amount to invest. |
| A broker can evaluate whether risky trading strategies are right for your portfolio. If they are, the broker can help you mitigate the risk and limit potential losses. | Turning your portfolio over to a full-service manager means giving up day-to-day control over your portfolio. |
Is It Better To Buy Stocks Without a Broker? Pros and Cons
Buying stocks on your own has pros and cons you should consider.
| Pros | Cons |
|---|---|
| You might pay a transfer agent’s fee to participate in a DRIP program, but typically trading on your own is much less expensive than trading with a broker. | It takes time to learn about investing and to research investments once you’re ready to start trading. |
| You maintain complete control over your portfolio. | You’ll be on your own to monitor your portfolio. |
Types of Brokers: Which One Is Right for You?
Services and available account types differ from one to the next, but overall, brokerages offer these different ways you can invest:
- Full-service brokerages: A full-service brokerage can provide investment recommendations and full management of your account. They’re typically paid commissions on trades they make on your behalf.
- Discount brokers: Discount brokerages provide lower-cost flat fees or commissions to execute trades at your direction. Schwab, for example, charges $25 to assist with listed stock and exchange-traded-fund trades. However, broker assistance does not include investment advice.
- Robo-advisors: A robo-advisor uses technology to select a portfolio of investments for you. The portfolios can contain mutual funds and ETFs from a select group. They will rebalance periodically to maintain the appropriate mix. Fees are usually based on your portfolio value and might include coaching calls with advisors.
- Online trading platforms and apps: Platforms and apps are for self-directed trading — trades you execute yourself. In return for doing your own research and selecting your own investments, you typically get to trade commission-free. Investing is not necessarily fee-free, though. If you trade options, for example, you’ll typically have to pay a per-contract fee. You might also have to pay to trade stocks not listed on a stock exchange.
Factors To Consider When Choosing a Broker
Brokerage firms offer a lot of ways to trade, which can be overwhelming if you’re just starting out. Here are some of the factors to consider as you explore your options:
- Fees and commissions:
- Brokerage commissions and fees vary by company.
- Compare them across several brokers to find the best combination of cost and service.
- Customer support and resources:
- An extensive library of educational material can help you find answers you’d otherwise need a stockbroker or financial advisor to answer.
- Trading tools and platforms:
- You can find trading tools and platforms for every level of self-directed investor.
- Start simply to avoid being overwhelmed by more charts and data than you can digest.
- You can switch to a more advanced platform when your skills advance.
- Account minimums and eligibility requirements:
- Full-service brokerages often require that you meet minimum investment requirements — $50,000, in the case of Fidelity.
- Certain types of accounts, including margin accounts, have federally mandated requirements and rules you’ll need to follow to qualify for an account.
Conclusion: Do You Really Need a Broker To Buy Stocks?
You don’t need a traditional stockbroker to start investing. In fact, you have several alternatives that could save you money and give you more control.
- DSPPs and DRIPs: Buy directly from companies — sometimes at a discount — and even reinvest dividends automatically.
- Online brokerages: Platforms like Robinhood and Fidelity allow you to trade stocks on your own, often without commissions.
- Robo-advisors: Prefer a hands off approach? Robo-advisors automate investing based on your goals, typically at a lower cost than human advisors.
Whether you go fully DIY or work with a full-service broker, the best choice depends on your experience, goals and how much time you want to spend managing your portfolio.
FAQ
Here are the answers to some of the most frequently asked questions about buying stocks.- Can I buy stocks directly from the company?
- Yes. A relatively small number of companies offer direct stock purchase plans that let investors buy shares directly.
- Do I need a broker for retirement accounts?
- Unless you open a bank independent retirement account, which is a savings account and not an investment account, you will have to open it through a brokerage.
- But you don't need a stockbroker -- you can open and manage your own account and execute your own trades within the account.
- The rules for a 401(k) are different. That's an employer-sponsored plan, and the employer selects a provider to manage it.
- What's the best stock trading app for beginners?
- "Best" is a subjective term -- the best for one new investor isn't necessarily the best for all new investors. Robinhood, Acorns and thinkorswim are three of many that can help you learn the ropes.
- Are there any hidden fees when using an online broker?
- There should be no hidden fees, but you'll have to read all the broker's disclosures to understand the fees they charge. Also, you might encounter investment fees, such as mutual fund expense ratios, that are not broker fees. Such fees are disclosed in the fund's prospectus.
Joel Anderson contributed to the reporting for this article.