Choices
Using a Broker or Brokerage
You may have heard of a broker (just from TV ads), but what is that? This is an individual or firm who is the go-between the buyer and seller. They usually charge a fee or commission for this service. For securities and most other products, they must be licensed.
Many brokers may have a minimum amount that you must invest. You can also use an on-line brokerage account. These will vary in the services and products offered so check around. The fees will depend on the services and products.
Full-Service Brokerage Firm
You deal directly with a licensed broker. Your broker will work with you individually and then provides you with customized advice. You pay for this advice, of course, in the form of a commission on each stock sale or purchase, typically 3%
A Discount Brokerage Firm
A discount brokerage firm does not provide personalized investment advice to its customers; investors who open accounts at these firms do their own research and make their own decisions about stock sales and purchases. As a result, commissions at the discounters are much lower than at full-service firms, with minimum commissions as low as $7 per trade to as high as $40 per trade. Most discount brokerage firms deal with customers primarily through their web sites.
Dividend Reinvestment Plan
One way to invest in stocks is through a Dividend Reinvestment Plan or DRIP. These plans also allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.
A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares commission free and at a significant discount to the current share price. Most DRIPS don't allow reinvestments much lower than $10. This term is sometimes abbreviated as "DRP".
Direct Stock Purchase
For many years, only a handful of companies have had the mechanism in place shares directly to individual investors. However, in 1995 the Securities and Exchange Commission eased its regulations, allowing corporations to implement direct purchase programs much more easily. Since then, the number of companies who are able to sell shares directly to investors has grown from a handful to nearly 400. These programs are commonly known as Direct Stock Purchase Plans (DPPs) or No-Load Stocks.