When you buy stock, you are actually purchasing a tiny piece of the company. If there are only 100 shares issued and you own one share, you own 1 percent of the company. If, on the other hand, there are 10 million shares issued and you own one share, your percentage of ownership in the company drops dramatically. There are several ways to buy company stock. You can go through a broker, purchase shares of a stock mutual fund, or in some cases, you can buy stock directly from the company.
Determine your investment goals and temperament. Make a budget to determine how much money you have to invest. Ask yourself some hard questions about how you relate to money issues. Do you sleep better knowing your money is in an insured savings account, or do you enjoy the thrill of rolling the dice? Knowing your investment goals and temperament will help you determine which stocks to buy.
Do your research. Not all public companies offer direct stock purchases, but many do. First find a company that you like and believe matches your investment goals and temperament. Contact the company's investor relations or shareholder's services department and ask if the company offers a direct stock purchase plan. If so, request an annual report. Read the annual report carefully to make sure the company's goals and performance matches up with your perceptions.
Set up an account. You will usually be required to fill out a new investor's enrollment form if you are new to the company, or a shareholder's election form if you already own some of the company's stock in your own name -- shares held in street name by your broker don't count. These forms may be filled out in hard copy form and mailed in, or many companies offer online enrollment.
Fund your account. Some companies charge a minimal initial fee, such as $10 for setting up a direct stock purchase plan. Most require a minimum deposit. Unlike purchasing stock on the open market where the investor has the option of naming the price she is willing to pay, stock purchased through direct purchase plans are usually made at regular times, and all investors who have funds available get their stock at the same price.
Determine how you want your stock dividends handled. Dividends represent profits above and beyond operating costs that the company's board of directors declare payable to the company's shareholders. Dividends, when declared, are typically paid on a quarterly basis. You can usually elect to have your dividends automatically re-invested into additional stock, you can have the company send the dividends to you as a check or have them direct deposited into your bank account, or you can direct the company to re-invest a portion of your dividends and pay the rest by check or direct deposit.
- Always keep your investment objectives and your temperament in mind when making your stock selections. Never invest in a company simply because it offers a direct purchase option.
- All investments in stock involve some risk. Past performance is never a guarantee of future results. Investors may lose some or all of their investment.
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