If the global financial crisis has taught us anything, it is that brokers are not the demigods they have made us believe they are. The good news is that with a little goodwill you can do without a middleman to put together your stock portfolio. Here's how to do it.
Steps
Method 1 of 3: Invest by buying stocks directly from companies
Step 1. Look for companies that offer DSPP (direct purchase of shares)
Most companies offer potential investors the option to buy the shares directly, which allows both parties to bypass the broker and associated costs. If you are unsure whether a company offers this option or not, contact them by phone or email and ask.
Start by visiting the site of the company you are interested in and look for the "investors", or "investments" or "investor relations" page. Here you will find information on the possibility of buying shares directly in the company. You can also simply search for the company name on Google, adding “direct purchase of shares”
Step 2. Browse their investment options
The options may vary from company to company, but the most common are:
- A one-time investment. A single investment that you can pay by check, bank transfer or by phone. Companies usually have a minimum investment limit (for example € 50).
- A monthly investment. An automatic payment scheduled from your bank account. Since it is a recurring investment, the minimum limit, if any, will be lower than that for individual investments (for example € 25 per month).
- Automatic reinvestment of dividends. This means that any gains you make on your investment will automatically be reinvested in the company. See the section on dividend reinvestment below for more information.
Step 3. Sign up
If you have found information on buying the securities on the company's website, it will probably be possible to complete the transaction online. If not, ask to be put in touch with their financial agent.
- Keep in mind that unless you already own stock in the company to transfer into the new investment plan, there will likely be a small sign-up fee to pay.
- Some companies have fixed monthly management costs, even if of a few Euros.
Step 4. Know what to expect
Whether you make a single investment or a monthly payment, you should know that you will have no control over the dates on which your shares will be traded. The purchase could take weeks, which means you won't know the stock price until you've paid for them. Due to this lack of control options, direct buying is not suitable for short-term investments. It's an easy way to make a long-term investment in a well-established company.
Method 2 of 3: Invest with the reinvestment of dividends
Step 1. Look for a company that offers dividend reinvestment
Many companies that allow direct stock buying will also offer you this option.
Step 2. Buy at least one share
The best thing about this system is that any earnings will be automatically reinvested in the company. Over time, your investment will multiply exponentially, as long as it's a solid company.
If the company you have chosen offers reinvestment of dividends, but not the direct purchase of shares, you will need to rely on a broker or agency. However, since a single action is enough, the costs associated with the operation will be limited
Step 3. Sign the reinvestment of dividends
The cost of this operation, if any, will be minimal.
Step 4. Know what to expect
The reinvestment of dividends essentially requires the investor to buy back the same stock, making it unsuitable for short-term investments, and not very profitable if the company is not solid. That said, reinvesting dividends is a simple and not at all demanding way to start investing with a small initial capital. Some companies will also make small periodic payments to shareholders instead of waiting for their withdrawal.
Method 3 of 3: Be your own broker
Step 1. Build a reserve capital
Being your own broker means committing a sizable portion of your savings to the stock market, which can put you in trouble in the face of unexpected expenses. The general recommendation is to have at least six months' salary in a separate account before you start investing your savings.
If you think you have to pay extra for health problems, to support a child, or because you work in an unstable industry, set aside at least a year's wages
Step 2. Evaluate your investment options
Online brokerage sites are a good place to start, they are usually cheap and offer investment advice. Fidelity, Charles Schwab, TD Ameritrade, E * Trade and Scottrade are all recommended by Forbes magazine.
- If you plan to trade stocks frequently (not recommended), look for a company with low operating costs. In some cases, brokerage agencies don't charge fees for trades if you run them within their ETF funds, although you won't be able to avoid any other fixed costs.
- If you don't have large starting capital, look for a company that doesn't reject small investors.
- Check to see if there are any companies that offer concessions like free checks and credit cards.
Step 3. Open an account
Once you have funded your account, you can start building your equity portfolio.
Step 4. Know what to expect
The stock market is fickle at best, a nightmare at worst. It's not necessarily dangerous, but if you're the type of person who wants to control and make money every day, you may want to choose another business. In general, it is better to diversify, do few trades, and try to gain long term rather than short term opportunities. Buy safe, high quality stocks and don't play with the ups and downs of the market.
Advice
Maintain complete records of all your transactions including ancillary investments, monthly installments, and reinvestment of dividends. Include the purchase date, number of shares, name and cost. This information will come in handy when selling or paying taxes
Warnings
- Make sure you have read the company prospectus carefully and are aware of the costs that will be charged to you. Sometimes the costs are higher than those of a broker, which usually requires between € 2, 50 and € 10 per trade.
- If you are going to invest in a mutual fund as an alternative to stocks, beware of costs. Mutual funds have annual fees that are significantly higher than a broker's commissions. For example, spending 1% on a $ 100,000 investment in a mutual fund will cost you $ 10,000 over 10 years. If I had bought the equivalent in shares through a broker, it would have cost only € 10, much less than the mutual fund. Even worse, the most active mutual funds incur a lot of commission fees and short-term earnings, passed on to investors. In general, mutual funds are not a good method of investment. Better to continue with the shares, even at the cost of having to rely on a broker.
