Direct buy stock programs

The direct purchase plans will let the investor buy fractional shares which makes it easier to start a position. Since investors can purchase fractional shares through a direct stock purchase plan, it lowers the initial investment requirement. While purchasing stock directly from a company or transfer agent has plenty of advantages, there are a few things investors should consider first. Here are 5 disadvantages for those looking to invest directly with a company instead of a broker.

Several companies charge an initial setup fee when an investor opens a purchase plan account. These costs cover administrative expenses and must be paid before any stock is purchased.

If the investor plans to own shares in the stock long term, then this expense is minimal compared to brokerage fees and commissions.

One of the biggest downsides of purchasing stock from a DSPP are the automatic investment fees charged by some of the companies. It is important to note that not all companies charge the same fees, but this is something to watch out for when you go to buy stock.

If you are a short term trader, then stick with your low-cost discount broker. Direct stock purchase plans are tailored to the long term investor, not a day trader. While a DSPP may be great for a long term dividend investor , they are not as convenient to those moving in and out of different stocks in a short amount of time. One of the advantages of buying stock through a DSPP is the low barriers to entry.

While most companies offer these low initial investment requirements, some make it more difficult to open an account. This can be a high initial requirement for the average investor looking to build a diversified portfolio.

A large initial investment also defeats the purposes of dollar cost averaging into a stock which is an advantage of a DSPP. By purchasing stock directly from a company or third party transfer agent, investors lose the ability to consolidate their holdings.

Investors who prefer to keep their stock positions in the same account may want to stick with using an online broker. Since direct stock purchase plans are opened outside of any stockbroker, the investor loses the ability to keep their assets in a single account which can make it more difficult to track and manage investments. Direct stock purchase plans offer another alternative to buying and selling stocks other than traditional and online brokers.

These plans offer several advantages over the other methods of allocating stock, including lower fees and commissions. A DSPP also gives the investor the tools to set up automatic investing each month as well as DRIP dividend reinvestment , which can be huge time and money savers.

While an investor may avoid certain broker fees, some companies charge administration and automatic investment fees for investors buying stock directly from them. Therefore, these plans are not tailored to the short term trader and favor the buy and hold investor over time.

Overall, direct stock purchase plans have plenty of advantages compared to brokers, making them a viable investment tool. Have you invested through a direct stock purchase plan? What disadvantages can you add for interested investors? Based in Atlanta, Georgia, William Adkins has been writing professionally since He writes about small business, finance and economics issues for publishers like Chron Small Business and Bizfluent.

Adkins holds master's degrees in history of business and labor and in sociology from Georgia State University. He became a member of the Society of Professional Journalists in Share It. TL;DR Too Long; Didn't Read The types of companies you can buy stock directly from include big box stores, businesses in the restaurant industry and even some large manufacturers.

Computershare, Inc. Copmanies with DSPPs. One drawback of a DSPP is that the shares are rather illiquid —it is difficult to re-sell one's shares without using a broker. As a result, these plans generally function best for investors with a long-term investment strategy. As much as DSPPs can benefit investors, they also can be worthwhile to the company that offers them. DSPPs may bring in new investors who otherwise might not have been able to invest in the company.

Moreover, a DSPP can provide a company with the ability to raise additional funds at a reduced cost. Companies that offer DSPPs usually cite information about the plans on their websites, under the investor relations, shareholder services, or frequently asked questions FAQ sections.

Here, you will find details about account minimums, investment minimums, any fees applicable to their offerings, trading details, and the like. So, although the mechanism for investing in DSPPs is slightly different from going through a broker, the risks of buying stock are equally present regardless of how the stock is purchased. DSPPs were seen as a pretty sweet deal in the early days of internet investing because you still had to pay significant trading or management fees to full-service brokers if you wanted to buy stock.

However, as online investing has become cheaper over time, some of the original positive factors of DSPPs have faded. Today, however, this benefit is practically moot because most stocks are kept in electronic form in a broker's computer system, which is known as in street name. In other words, paper certificates have well-nigh disappeared anyway.

When you make a new purchase through a DSPP, regardless of whether you make a one-time purchase or sign up to invest monthly, typically you will not have any control over the respective trade date.

When you use a transfer company the transaction may not happen for a number of weeks. Basically, the purchase goes through at whatever the stock price happens to be at that time.

On the other hand, discount brokers allow you to trade in real-time, so you always know the price. A cardinal precept of investing is to diversify your investments. So, unless you are enrolled in dozens of DSPPs across multiple industries and internationally, or have most of your investments in index funds, mutual funds, or exchange-traded funds ETF , you may be inadequately diversified.

In fact, just about any individual stock purchase, whether direct or broker transacted, runs this same risk. You need to diversify. DSPPs on their own typically will not do the trick for the average investor. Many charge initial setup fees, and some charge for each purchase transaction, as well as sales fees. Even very small fees can add up over time, especially if you are slowly and automatically adding to your position.

So, as with any investment, always read a DSPP prospectus carefully to see what fees you might be charged. All things considered, the greatest benefit of DSPPs for individual investors remains the ability to avoid commissions by not going through brokers.

For some, investing in DSPPs still is a good option. For the small investor who is ready to buy individual shares of a particular company to add to their portfolio and hold for the long term, a DSPP may be a thrifty way to do so.