Investors have traditionally used professional brokers to manage their investment portfolios, but there are also a few viable avenues you can follow to manage it solo. If you feel that it’s time that you took control of your investment portfolio yourself then we have you covered. Let’s take a quick dive into the best investment plans you can use if you want to buy stocks online without a broker or brokerage.
Whether or not you’re buying equities on your own, without a brokerage account or an actual broker, a professional financial advisor remains a powerful resource as you decide which securities to add to your portfolio.
DSPPs (Direct Stock Purchase Plans)
A direct stock purchase plan (DSPP) is best used if you’re interested in a business that’s gone public. Do your due diligence to confirm whether the company in which you want to invest offers a DSPP in the first place since DSPPs apply only to a select number of companies that offer stock to the public for long-term investment.
DSPPs also offer some notable advantages compared to the other plans that we’ll cover in just a moment. Arguably the greatest appeal of a DSPP is the passive and largely automated experience that investors will have. Simply contribute your desired amount of funds through a DSPP and have the option to contribute more at a later time that’s best for you.
Since DSPPs have such a hands-off approach to purchasing publicly traded stocks for the long term, investor data privacy and security are less vulnerable to theft or abuse. In other words, they provide solo investors with the peace of mind that their investment data is unlikely to be sold or shared improperly.
With the knowledge that DSPPs are best suited for long-term investing, it’s safe to say that these plans aren’t the best options for investors who long for the agility of a licensed stockbroker or registered representative or the short-term trading made possible by a brokerage account. DSPPs also require that investors maintain their plans separately from other investment accounts, which can cause headaches for those who like having everything in one place.
DRiPs (Dividend Reinvestment Plans)
Like a DSPP, a dividend reinvestment plan (DRiP) is a good choice for solo investors with an eye on a publicly traded company. And while there are similarities to DSPPs, reinvestment plans like DRiPs instead take dividends you earn from stocks you buy so that you can continue to buy more stocks and (hopefully) experience a larger ROI on a regular basis.
The idea behind DRiPs focuses more on portfolio investments that trigger compounded growth on your returns. As compound interest works, using DRiPs to reinvest in a company’s dividends lets investors keep growing their portfolios without having to contribute more funds regularly. And similar to the platforms that allow you to create a DSPP account, platforms for DRiP account creation prioritize protecting data from intruders and securing highly sensitive personal and financial information.
As is the case with DSPPs, DRiPs come with their own set of drawbacks depending on your investment goals and objectives. Only certain companies offer DRiP accounts, which means you need to do your homework on the stocks that you can purchase. Investors interested in starting a DRiP account should bear in mind that gains from DRiPs are taxable income and require that you have proper liquidity to compensate for the taxes you’ll pay on such gains.
How to Sell DSPP and DRIP Shares
Both DSPPs and DRIPs allow you to purchase stock from a company or broker, and sometimes without paying a fee. DSPPs in particular often use third-party transfer agents to handle the transactions. However, the shares of a DSPP are also illiquid, meaning that it’s very hard for you to sell the shares without the aid of a broker. As a result, it’s best to have a long-term strategy before investing in a DSPP since you won’t have as much control over selling them. The transfer agent you use, for example, will most likely need to determine the trade date for the sale.
In the case of a DRIP, you can purchase shares of a stock using the dividends of the existing stock you already own. When the time comes to sell the shares, you can do so independently since there is no broker. However, depending on the stock you’ve purchased you may need to contact a third-party transfer agent in order to place the market order to complete the sale. Something important to keep in mind with DRIPs is they aren’t sold on the actual market, so when you complete a sale the company you purchased the stock from in the first place will purchase the stock back from you.
Depending on your plan prospectus, there may be minimum dollar purchase requirements for both DSPPs and DRIPs, but it’s usually very low (around $10).
Online Brokerage Accounts
While DSPPs and DRiPs can certainly help solo investors start purchasing shares themselves, they can also be restrictive and potentially confusing. One alternative to both DSPPs and DRiPs is an online brokerage account. These are the accounts you’d normally open with a financial institution and, just like traditional brokerage accounts, are available on many online trading platforms that are suitable for both investment novices as well as veterans. It’s important that you get familiar with the top online trading platforms on the market as well as the trading platform controls that they use.
One of the biggest draws of online brokerage accounts is the low cost. Many such accounts charge nothing to trade certain types of securities, or the charge is minimal. However, you should be aware that companies advertising zero-commission trades may be getting compensated by market makers for what’s called “order flow,” something that can affect your profit, especially if you’re an active trader. Also, as with DSPPs and DRiPs, keep in mind that you’re responsible for everything from the stocks that you purchase to choosing the best time to cash out your funds.
The Bottom Line
There are multiple ways to start buying stocks without the help of a brokerage or a full-time investment broker. Consider whether your investment plans are for the long or short term; DSPPs and DRiPs tend to work better for long-term investment strategies, while online brokerage accounts can be more conducive to both short- as well as long-term portfolio management. After all, there’s no one-size-fits-all approach to buying stocks solo; thoroughly research your options on buying stocks online before you decide on the trading solution that’s best for you.
Tips on Investing
- Consider working with a financial advisor as you decide on how you want to buy and sell stocks. The right pro can help you put together a full financial plan or manage your investments for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Whether you’re considering getting started with investing or you’re already a seasoned investor, an investment calculator can help you figure out how to meet your goals. It can show you how your initial investment, frequency of contributions and risk tolerance can all affect how your money grows.
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