Investing in the stock market can be a smart move, but it can be difficult to get started, especially if you do not have much money to invest. Many brokerage firms and mutual fund companies require an initial investment of thousands of dollars, but there are ways to buy stock directly and get started with very little money.
Direct Stock Purchase Plans
A number of companies operate direct stock purchase plans that allow investors to purchase shares directly from the firms. When you participate in a direct stock purchase plan, you do not have to pay any brokerage fees on the purchases you make. Some plans also allow you to reinvest any dividends and use them to purchase additional shares of stock. If you are interested in a direct stock purchase plan, you can go to the company's website and find the link for investor relations. Once there, contact the appropriate individual and get the forms you need to sign up.
Employee Stock Purchase Plans
Many companies allow their workers to accumulate shares of stock through payroll deduction. If your employer offers such a plan, you can buy those shares without paying a brokerage fee, although there is typically a small fee when you want to sell the shares. In addition to those brokerage-free purchases, you typically enjoy a discount off the market price of the stock. That can make an employee stock purchase plan quite a compelling investment, especially if you know the firm well and believe in its future prospects. You can contact your human resources department to determine if an employee stock purchase plan is available.
One problem with direct stock purchase plans is that the selection is somewhat limited. While many companies offer these types of investment programs, they might not necessarily be the companies you want to invest in. You should never invest in a company solely because it has a direct stock purchase plan available. Instead, you should do your homework and base your investment decision on things like earnings growth, future prospects for the company and the talent of the management team. The availability of a direct stock purchase plan is a bonus, but it should not be the reason you buy the stock.
It can be difficult to build a widely diversified stock portfolio using direct purchase plans, so you might want to expand your horizons and look for low cost ways to purchase other stocks. You can choose low cost index mutual funds to get exposure to the entire stock market. You can also open an account at an online discount broker and buy and sell stocks for less than $10 per trade. Or you can use a combination of strategies, including mutual funds, brokerage accounts and direct stock purchase plans, to create a well-rounded, balanced investment portfolio.
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