Buying Stocks without a Broker | SoFi
Buying stocks can help you get started on the road to building wealth. And just as hiring professional movers can help make moving less stressful, buying stocks through a broker can make the process of diversifying your portfolio easier.
which, however, may involve the payment of commissions and fees to trade stocks and other securities. Potential investors trying to cut investment costs may wonder how to buy stocks online without the involvement of a broker, if at all possible.
Reading: How to invest in the stock market without a broker
how can i buy shares without a broker?
It is possible to buy shares without an intermediary. In fact, there are three alternatives to using a full-service broker: open an online brokerage account, invest in a dividend reinvestment plan, and invest in a direct stock purchase plan. This article will cover the pros, cons, and how-to’s of each of these ways to buy stocks without the involvement of a broker.
But first, it can be helpful to understand why some investors choose to use a broker when buying stocks.
benefits of using a broker to buy stocks
As the name implies, stockbrokers can help broker trades in stocks and other securities on behalf of their clients. in return, they can earn commissions for making those trades. But that’s just one of the things a full-service broker can do. The role of a stockbroker may also involve:
• offer trading advice to clients based on their experience with the stock market and education.
• give your clients additional tips and advice, such as which investments they should buy and sell or when it makes sense to do so.
• build relationships with your clients to better understand and inform individual investment strategies.
A stockbroker’s salary relies heavily on commissions, which means they have to be pretty good at what they do to make a living. Investors can benefit from the education, training, and experience a stockbroker accumulates throughout their career.
That said, for most brokers, their payment comes from their transactions, which means that a client has to pay their broker every time they buy, sell and trade.
For some, a broker’s knowledge is worth the cost of doing business. for others, the idea of investing in DIY is more attractive. it all depends on personal preferences.
how to buy stocks online without a broker
DIY investors have several options to buy stocks without online brokers. here’s a closer look at how each works.
direct share purchase plans
Direct Stock Purchase Plans (DSPPs) allow investors to purchase company shares directly from the company itself. specifically, transactions are completed through a transfer agent. that means you can buy shares without a broker, full-service or online, to complete the transaction.
Listed companies may offer dspp, although not all listed companies offer dspp. each company can determine what minimum investment to require for initial and subsequent share purchases.
advantages of buying dspps
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purchasing dspps comes with its own unique set of advantages:
• passive investing: many dspps plans allow an investor to invest a fixed amount on some kind of recurring basis, a sort of “set it and forget it” strategy.
• lower fees: dspps typically charge little or no fees or commissions once the account is created.
• An investor can get a discount: Depending on the company in which a person invests, they can be offered a small discount, between 1% and 10%, for investing directly.
cons of buying dspps
although dspp have advantages, they also have some drawbacks:
• Higher Startup Costs: There is typically a cost associated with starting a dspp account, and dspps typically require an initial investment of $250 to $500, with no option to purchase fractional shares .
• It’s another account: dspps are held by individual corporations. Therefore, if an investor holds DSPP shares with multiple companies, each will live on the company’s individual platform.
• Usually long-term investments: dspps do not offer the same flexibility and speed as an online broker. for that reason, they are typically considered more appropriate for a long-term investment.
dividend reinvestment plans
dividend reinvestment plans (drips) share many similarities with dspps; in fact some dspp offer drip programs. With a trickle down, investors can still buy shares directly from the publicly traded company, but they can also reinvest dividends earned on the shares directly into the company to buy additional shares.
pros of drip programs
In addition to the benefits of dspps, trickles have a few to offer on their own if you want to buy stocks without a broker:
• Automated Compound Growth: Dividend reinvestment is similar to compound interest. drips allow investors to continuously reinvest and grow, without having to add funds.
• reinvestment without commissions, even in fractions of shares: the investment of dividends is carried out without commissions. investors are also often offered the opportunity to purchase fractions of a share.
cons of drip programs
drips share many of the same drawbacks as dspps, but also have some specific ones:
• limited selection: not all companies that offer dspp offer drip, which means you are selecting from a smaller pool.
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• Dividends remain taxable: Although cash is automatically reinvested in a trickle down, investors will still pay taxes on earnings. that means they may want to have liquidity elsewhere to pay the tax.
online brokerage account
Online brokerage accounts offer the convenience of being able to buy stocks online without a full-service traditional broker (and typical traditional broker fees). think of it as the difference between dining at a full-service restaurant and dining at a self-serve buffet.
After opening an account with an online broker, an investor can tell their broker what they want to buy and how much. then the broker completes the order.
Depending on the online broker, there may be little or no fees associated with making a transaction.
advantages of investing with an online broker
It may sound easy enough, but investing online has advantages and disadvantages. These are some of the advantages:
• Low Fees: When it comes to investing online, people often expect to pay lower fees. Recently, many online firms have even eliminated commissions.
• DIY investing: There is a lot of freedom that can come with an online brokerage account. an investor can choose, creating a personalized plan.
• It’s on demand: whenever the markets are open, an investor can request operations through his electronic investor.
cons of investing with an online broker
Depending on an investor’s personality and preferences, there may be some downsides to using an online broker:
• It’s all up to the investor. Online investing can provide investors with many options and freedom, but without the expertise of qualified financial professionals, some investors may be forced to do their research and strategizing on their own for some, this can be stressful.
• It’s long term. Since online investing is on demand, a person can sell whenever they want. that can be a challenge for an investor if patience is not their strong point.
While there are some advantages to using a traditional full-service broker to buy stocks, you don’t necessarily need one to invest. There are a few different ways to buy stocks without a broker, including using an online brokerage account.
Online brokerage accounts have helped remove some of the barriers that prevent people from investing. With an online broker like Sofi Invest®, investors need as little as $1 to get started and can choose between an automated investment account or using an active investment strategy. members can invest in stocks, fractional shares, etfs, and cryptocurrencies.
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