One of the most compelling reasons to invest in the stock market is stocks' tendency to outperform other investment options over the long haul. You don't have to own Fort Knox to get involved in buying stocks. In some cases, you can even bypass your investments broker and save the commission by purchasing stock directly from the company. Many companies allow you to build your stock position slowly through an automatic monthly stock purchase program.
The Company You Keep
Not all companies offer a direct stock purchase plan, so you'll need to do some research before you get started. First, determine the companies whose stock you are interested in owning. Contact each company's investor relations department and request its most recent quarterly and annual report. Check out each company's balance sheet and other financial reports. Pay attention to the chairman's letter to shareholders, and make note of any extraordinary events, income or expenses. Make sure this is a company whose stock you want to own for the long haul.
Direct Stock Purchase Plan
Check with the company's investor relations department to see whether the company offers a direct stock purchase plan. Not all companies do, and some that do restrict participation to existing stockholders or employees. Direct stock purchase plans are offered by prospectus only, so you'll need to request a prospectus. This document will provide details of the plan, including associated fees and expenses. You'll want to read and understand all of the plan's provisions before you make any investment. Make sure the plan offers a monthly stock purchase option.
Sign The Papers
Paperwork is always part of the process. You'll have to complete an enrollment or new account application. You can typically complete these forms online, but you might also have the option of completing a paper application and submitting it by mail. You'll have to supply certain personal information, such as your name, address, Social Security number and contact information. You might be asked for identity verification in the form of a passport or a state-issued driver's license to comply with provisions of the Patriot Act. Sign up for the plan's automatic stock purchase option.
Show Me the Money
Fund your new account by depositing the required minimum initial investment. You might also have to pay an application fee or new account fee. The minimum initial investment and any set-up fees vary from company to company. Stipulate how much you want to invest each month, designate the financial account -- typically your bank checking or savings account -- with which you want to make monthly payments, and authorize the payments by signing the appropriate forms. The plan administrator will automatically draft that account each month at a designated time and use those funds to buy company stock.
- U.S. Securities and Exchange Commission: Direct Investment Plans: Buying Stock Directly from the Company
- USA Today: Three Cheap Ways to Buy Stock, If You Know Exactly What You Want
- USA Today: Are Direct Stock Purchase Plans Good for Beginners?
- American Funds: Why Balance in Your Portfolio Matters Over the Long Term
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.