There are two major ways to invest in company stocks. You can find a stockbroker to help you start investing or consider DIY investing in mutual funds, exchange-traded funds (ETFs), or cryptocurrency. The decision to hire a broker or invest all by yourself will depend on factors like an investor's personal needs and preferences.
Learning to trade stocks without a broker is one of the best ways to get into the market. It means you won't need to hire and pay an in-person or online broker to handle your investments. This means you get more returns on your investment and can save money to diversify your investment portfolio further.
However, that's not to say that investing in the stock market with the help of a broker is a bad decision. It can sometimes be the best investment strategy, especially for beginners who do not understand the market well. Using a broker can help you make the right decisions on a trading platform and stay on track with investing.
This article will focus on investing in individual stocks without using a broker. It will discuss the various ways to buy stocks by yourself and why you need a brokerage account to do it. Read on to the end to know the various steps you should follow to ensure that you invest wisely.
Here's everything you should know about DIY investing in stocks.
Do I Need a Broker To Buy Stocks?
Many people aren't sure about whether to hire brokers for stock purchases or not. The reality is that you do not need a broker to help you with online trading. However, it would help if you did not rule brokers out of your investment journey until you can handle the process yourself without putting your bank account at too great a risk.
All you need to invest by yourself is background knowledge about the industry — understanding stock prices and market prices, fractional shares, and other key aspects of trading are essential. Also, you need to set up a brokerage account that you will use to find stocks and make market orders with the companies that sell them. You do not pay any fees to buy or sell through your online brokerage account through a platform like E*trade, but you do in order to work with brokerage firms like Fidelity or Charles Schwab.
When you open a brokerage account and start buying stocks, you become a retail investor and shareholder in companies. The process is seamless as long as you have an internet connection and money. But your success will depend on factors like the company's performance, which is beyond your control.
But the decision to invest in stocks without a broker is significant. It would be best to take your time before deciding that it would be a good option for you. For instance, you need to check your risk tolerance. Stocks can be a risky investment, so you should absorb the risk.
Brokers act as financial advisors who help you go through the process smoothly. Without them, you have a huge task of decision-making. The best you can do is research enough about how to buy stocks without a broker to ensure the journey turns out to be as smooth as possible.
Ways To Buy Stocks Online Without a Broker
So, how can you buy stocks without a broker's help? Well, as a DIY investor, you have several options to consider when looking for ways to invest in the stock market. Let's take a closer look at the various options you can consider for DIY investing in stocks.
This is the first option that should cross your mind as a stock investor. With this option, you buy stocks directly from the company. You do not need an online or full-service broker to purchase stocks using this option. All you need to start transacting with this option is a transfer agent.
Also, you need to find out if a company offers DSPP as an investment option. Companies that are publicly traded in the stock market offer it. But they also have minimum investment amounts that you should stick to. Take your time to find a company with the best DSPP investment terms.
Benefits of DSPPs
- This option encourages passive investing which helps in achieving financial freedom. You can consider it alongside investments like the bullion bars sold by Acre and other gold dealers.
- Once you have set up your account, you'll only need your investment amount to get started. You won't get charged a commission to start selling, or if there is, it will be a little.
- You might get a discount of between 1% and 10% when investing in a DSPP. The percentage will depend on the company you are investing in and its investment terms.
Limitations of DSPPs
- Running a DSPP account may be cheap but starting one can be expensive depending on your budget. The initial amount you must invest may range between $250 and $500.
- DSPP accounts exist individually because they're held with different companies. This means you might have a lot of management work to do.
- DSPs may not favor short-term investors because of how they're designed. There's minimal flexibility and speed, meaning a short-term investor might not get returns from them.
- Dividend Reinvestment Plans
The next option is Dividend Reinvestment Plans (DRiPs). They are almost similar to DSPPs but with a few differences between them. The similarity between the two is that you buy stocks directly from companies in both. The difference is that in DRiPs, you can reinvest the dividends.
Benefits of DRiPS
- It is easy to grow your investments with DRiPS without injecting additional funds into the investment. As said, you can reinvest the dividends you get and multiply stocks.
- You invest free of charge when buying stocks through DRiPS. Also, you can buy fractions of shares, meaning you enjoy more investment flexibility.
Limitations of DRiPS
- You may not find this option in most companies, especially those that offer DSPs. This will leave you with a smaller pool to choose from as an investor.
- Although you can reinvest the dividends earned on your shares, they will still get taxed, which means you may need extra funds to pay taxes.
- Online Brokerage Account
The other option for DIY investors is to buy stocks using an online brokerage account. These accounts make it easy to invest while avoiding the stress of hiring a broker. You give all the details to a broker, and they will initiate the process by helping you start buying stocks.
Benefits of a Brokerage Account
- You'll pay low fees when investing using an online brokerage account. Most brokerage accounts have commissions that will make investing cheaper than you'd expect.
- It's also possible to choose how you would like to invest. Customizing your investment plan will make it possible to get the desired results in the end.
- You can trade at any time as long as the markets are open. Stocks are easy to liquidate because they are always in demand.
Limitations of a Brokerage Account
- It might be stressful because you need to research enough. Otherwise, you may not be able to make informed investment decisions.
- It may not suit investors that have short-term goals. It's designed to help people get value for money in the long term.
Those are the major options you have when buying stocks as a DIY investor. There is no doubt that you can still reach your investment goals without working with a broker. You can research and learn about the industry and avoid brokers in your investment strategy.
Why You Need a Brokerage Account But Not a Broker?
You might not have understood why having a brokerage account is better than a broker. You do not need a broker if you understand the stock market. You can invest all by yourself using your brokerage account. These accounts are available to anyone with dreams of investing.
On the other hand, a broker is vital for a beginner investor. Most beginners do not know how to invest wisely and avoid making losses. It can also be difficult to determine the best way to invest, whether it is through a DSPP, DRiRP, or online brokerage account.
A broker will provide the investment advice you need to make the right decisions. So why pay for investment advice when you already know what to do? You can invest without any help from a broker and reach your goals in the long run.
The Bottom Line
That's all you need to know about buying stocks without a broker. You can now get started with investing in stocks today. First, choose a brokerage and set up your trading account. Then start finding the stocks that best fit your needs by considering factors like the company's profitability.
In the end, you can invest as much as you want without requiring help from a broker. Avoiding a broker means you won't need to pay broker fees; you enjoy full returns on investment. But you should choose your most favorable investment method, like DSPPs that are commission-free.
If your aim is diversifying your income, think about investing in other assets. For instance, you can invest in gold stocks or physical gold like bullion bars. If you consider investing in the gold market, you can contact us for expert insights that will help you invest in gold bars.