The Cheapest Way to Buy Stocks

One of the impediments to buying individual stocks instead of mutual funds is the cost of the commission. Paying high commissions on each stock trade you complete can eat into your profits and reduce the attractiveness of buying individual companies. Fortunately, there are ways investors can trim their costs and buy the stocks they want at very affordable prices.

Instructions

1. Contact the human resources department at your office and ask if the firm participates in an employee stock purchase plan. If the company you work for participates in an ESPP, you can purchase shares of your company stock through payroll deduction, without paying any commission at all. Depending on the plan, you might also be able to purchase the company stock at a discount to the market price, giving you an instant return on your investment.

2. Read financial publications like the "Wall Street Journal," "Barrons" and "Investor's Business Daily" and look for ads run by online brokers. Discount brokers like E*Trade, TD Ameritrade and Scottrade often run ads in these publications, and they sometimes advertise special bonus offers as well. Online brokers sometimes offer perks like free trades or cash bonuses to investors who transfer their accounts to the firm.

3. Contact each of the online discount brokers you identified and ask for a fee schedule. Some online brokers use a flat fee schedule that applies no matter what the type of trade or number of shares. Other discount brokers charge one fee for stock orders and another for option orders and other trades. Still others use a tiered fee schedule that is calculated based on the number of shares you buy or sell.

4. Review the information about each online broker carefully to make sure you meet the minimum balance requirement. Some brokers impose a quarterly or annual maintenance fee on accounts under a certain dollar value, and those charges could negate your commission savings.

References

• Turbo Tax: Employee Stock Purchase Plan