In the past you had to save up several thousand dollars before you could invest in big companies. That’s still true if you buy stock through a traditional broker. In recent years an exciting alternative has become popular that lets you invest in big companies with little money. Almost 2000 companies offer Direct Stock Purchase Plans (DSPPs). With a DSPP you buy stock directly from the issuing company. Even better, the transaction fees are much less than the commission you would pay most brokerage firms.
Understand how a Direct Stock Purchase Plan lets you invest in big companies with little money. Companies like Kellogg’s, General Electric and WalMart contract with a third party called a transfer agent to allow small investors to buy their stock. The minimum investment is usually $250 to $500. If you agree to have money automatically debited from your checking or savings account, you can meet this minimum with $50 monthly installments. You can add to your account in amounts of $50. A few companies even allow minimum deposits of $25.
Know the costs of your DSPP. Transfer agents charge a one-time set-up fee of $10 to $20. Individual transactions cost only $1 to $2 if they are made by electronic transfer of funds, plus 3 to 5 cents per share. Some companies like Exxon Mobil pay these fees so purchasing shares incurs no fees at all. The cost of selling shares is higher. A sell order costs $10 to $30 plus 5 to 15 cents per share.
Find companies that offer Direct Stock Purchase Plans. A good place to start is with the listings of transfer agents like ComputerShare (see Resources below) and Sharebuilder (see Resources below). If you are interested in a company but don’t know if it has a DSPP, go to the company website and choose their Investor Relations section. If they offer a DSPP it will be featured along with contact information for their transfer agent.
Open a DSPP account to start buying stock in the company you pick. Transfer agents make this easy to do. You can fill out an application to open an account online and arrange for payment much as you do with any online purchase.
Choose the plan features you want. Most plans have several options you can select. Typically, you can have dividends automatically reinvested at no charge and have your stock certificates kept in safekeeping for free. You may set up your DSPP as an IRA or Educational Savings Plan. Some companies offer special features. For example, McDonalds will open a DSPP for a minor for a minimum of only $100.