Before the advent of online stock trading you typically had to trade stocks through your broker in rounds lots of 100 shares, or pay a premium to trade odd lots of less than 100 shares. Buying partial shares of stock wasn't really an option. Times have changed. A number of companies allow 21st century investors to bypass their investment brokers altogether by purchasing stock direct. Such direct stock purchase plans usually involve making a dollar-amount investment, rather than purchasing a set number of shares. This commonly results in the purchase of partial shares of stock.
Analyze your investment objectives and risk tolerance before you start researching companies that offer direct investment plans. Once you know the kind of stocks that are appropriate for your portfolio, look for companies that offer a direct stock purchase plan. Contact each company's investor relations department and request a plan prospectus and any other company disclosure statements that are available. Read this information carefully to ensure that you understand the plan's provisions, and select a company to trade with.
Open an account with the selected company's plan administrator. Complete a new account application if required, which will ask for some personal information, such as your name, address, contact information, and Social Security number. Some plans allow you to set up a regular, automatic investment plan that drafts a pre-determined checking or savings account. You'll be able to choose whether you want your dividends to be automatically reinvested into additional company shares or to be paid to you in cash, or whether you want a combination of the two.
Deposit the money for your purchase. When you first set up your account you might have to pay an application fee, set-up fee, or new account fee along with the amount of your initial purchase. Rather than purchasing a fixed number of shares of company stock, you'll be contributing a fixed dollar amount. The plan administrator will pool your money with money from all of the other plan participants and purchase company stock in one transaction. The plan administrator will divide the shares among each of the plan participants on a pro rata basis, which will likely result in both whole and partial shares credited to your account.
Regularly investing the same dollar amount through a direct stock purchase plan allows you to take advantage of dollar cost average. This causes you to purchase more shares when the stock price is low and fewer shares with the stock price is high, resulting in a lower average price per share.
All investment in stocks involve some risk, and stock purchased though a direct purchase plan have the same risks as stock purchased on the open market. You could lose some or all of your investment.
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