People invest in the stock market for a variety of reasons, including the ability to obtain ownership in a corporation with limited liability. Some stocks pay regular dividends, which provides a nice form of supplemental income. Other stocks may appreciate in value, providing investors with a nice capital gain. Buying stocks through a full service investment brokerage firm can be pricey. There are less expensive ways to buy stock, including purchasing stock directly from the company.
Determine how much money you have to invest. Investing in the stock market involves a certain amount of risk, no matter how old, large or stable the company you are investing in may be. Investment money should not be confused with savings money. Create a budget and a balance sheet. Pay off your high interest credit cards and make sure you have sufficient funds in savings before you even think about investing in stock.
Conduct research and identify several target companies to invest in. Most companies who issue publicly traded stock will have an investor relations department. Find several companies that you like, contact this department and request an annual report. This report provides important information such as sales, cash on hand, debt, stock price history and dividend payouts. It will also tell you if the company has a direct purchase program.
Enroll in the program. Most companies that offer direct investment programs will require you to fill out enrollment paperwork, and many allow you to do so online. You will need to provide such information as your name, address and social security or tax identification number. You may also be asked to determine how you want any dividends handled. They can usually be automatically reinvested in additional company stock, paid directly to you or divided between the two.
Make your initial investment. This is usually done by check or electronic funds transfer. One advantage of many direct investment programs is their low initial investment, which may be $50 or less. Some programs will allow you to set up an automatic monthly investment program which will draft your bank account for the amount you specify. This helps establish a regular habit of investing. Some programs may also charge a small, one-time, initial set up fee.
Pay attention to your investments. Investments in the stock market should be made with "long-term" money; these are funds that you expect to leave invested for at least three to five years. However, this doesn't mean you park your funds in a single stock and never look at them again. Circumstances in the stock market, the general economy or the company you are invested in may change, which may require you to sell your holdings and invest them in a different place.
- Companies that offer direct investment programs typically cover all the brokerage and administrative fees for stock purchases, so you pay no commission on stock purchases. It is the cheapest way to buy stock.
- However, there is typically a charge when you sell your stock.
- All stock investments involve some risk. Past performance is not a guarantee of future results. You may lose some or all of your investment.
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