Sat May 12, 2018 10:50pm EST
Finance Attitude - 3 Ways to Buy Stock without a Full-Service Broker
Finance Attitude - 3 Ways to Buy Stock without a Full-Service Broker

Trading a stock is in most cases done via brokerage firms. The investor first finds a reputable brokerage firm to facilitate the process. The full-service broker charges a hefty commission that eats into your investment returns. For these among other reasons, you may be compelled to decide not to use a stockbroker or avoid having a brokerage account to reduce the costs. The direct investment option has some pros and cons which you will need to weigh given your unique circumstances and preferences. Here are three major ways to buy a stock without a stock broker:

1.    Invest through direct stock purchase plan (DSPPs)
The use of DSPPs also known as no-loads stocks allows investors to invest with a fixed dollar amount each month regardless of the stock price, a strategy called DCA. The investor is able to purchase shares directly from a company with the help of a transfer agent. The stock price fluctuates and so the number of shares purchased varies because of the fluctuating prices per month. This method reduces the possibility of investing a large amount of dollars at the wrong time. An investor invests in companies that are well established for over a long period of time. The drawback of this strategy is lack of diversity unless you invest in a number of different companies across a variety of industries.

2.    Invest through Dividend Reinvestment plans
Another way to eliminate the broker is to enroll in a stocks dividend reinvestment program commonly known as DRIP. DRIP allows the investor to reinvest the cash dividends paid out by the company by buying additional shares, changing either nominal fees or nothing at all depending on the individual plan specifics. DRIPs allow investors to purchase a fractional share which is lucrative as you don’t hold onto cash outs instead you invest it. The downside of this strategy is that the investors don’t have a chance to diversify their portfolio. DRIP does not give the investors control over the purchase date of shares. You can choose either the full or the partial enrollment plan. The full plan lets you reinvest the entire monthly dividend while the partial plan allows only a portion of the dividends to be reinvested back into the company and the other portion is paid to you.

3.    Use an online broker
It is much cheaper to use an online broker compared to a full-service broker though online brokers do not offer comprehensive investment advice. Discount online brokers charge small commissions and investors have control over their accounts. Investors do their own research which can help them decide when to trade. Choose a site with a good technical support, open an online brokerage account, determine your risk tolerance and select the account type to trade with which can either be cash or a margin account. Fund your account with dollars and start trading.

Bottom line
Another unconventional way is where an investor can acquire a single share through a specialized gifting service. An investor, in this case, has a relationship with an asset management company, who gets the Registered Investment Advisor to have one of the firm's institutional brokers place a trade on behalf of the client and then it is transferred as a gift to a child or family member through the DRS. The recipient of the equity would then be able to buy a stock without a broker. Investors can opt for a cash-only brokerage account as opposed to the margin account and make sure they are covered by SIPC insurance.