How to Invest Directly With a Company
The stocks are something you take physical possession of, much like cash, bearer bonds, or numismatic coins.
Some people may prefer holding certain investments in their possession, rather than through a third-party dealer like an investment broker. And there may be certain advantages to doing it that we don't normally realize.
Why You Should Invest Directly
Given the ease and convenience of investment brokerage firms, why would you want to consider investing directly with a company itself? Convenience shouldn't necessarily be the driving force behind an investment decision, but there are companies available that make this a smart and easy choice.
Here are five reasons why you might want to hold your stocks directly:
Low fees. If you have a brokerage account, you’ll have to pay fees — including transaction fees and annual maintenance fees. By purchasing stock directly from a company, the fees will be much lower. To set up a plan, the upfront fee is as low as $10 plus an additional dollar or two to set up an automatic draft for future investments.
Core holdings. There may be a few stocks that you consider to be core holdings, or stocks you plan to hold for most of your life. This is often a strategy of “old money” families. They buy large amounts of a select number of stocks and hold them forever. There is no need to have a trading account for stocks that are part of your core holdings.
You only want to own a few stocks. You may have no desire to actively trade stocks or even to take large positions. If you're mostly a fixed-income type of investor who holds just a few shares of stock, it's better if you buy them through a company and hold them in your possession, rather than maintaining a brokerage account.
Low minimum investments. Many mutual funds require a minimum upfront investment of $1,000 or more, but you can buy stock directly from a company for much less. For most companies, the upfront minimum ranges from $250 to $500, and you can often build that amount up in several installments. You can also buy additional stock in increments as low as $25.
Stocks for children. You may wish to gift stocks to your children or grandchildren. If that’s the case, direct ownership works better than a brokerage account. Generally speaking, you will not be able to buy the stocks in the child’s name if he or she is a minor, but you can set up a purchase under the Uniform Gifts to Minors Act that can be converted when they reach the age of majority.
Direct Stock Purchase Plans
Officially, buying stocks directly through a company is referred to as a Direct Stock Purchase plan or DSP. Many public companies don't participate in DSPs, but there are a number that do, especially well-known companies.
You can buy a certain number of stocks or even set up periodic contributions to purchase them in the future. Specifically how they’re purchased will depend upon the particular company and the methods it offers within its plan.
As for selling your shares — should the need arise — many companies will buy back their own shares. They will charge a flat fee of $10 to $30, plus five cents (or more) per share. For companies that don’t buy back their own shares, you can simply deliver the shares to an investment brokerage account for disposition.
Direct Re-Investment Plans
Many of the same companies take it a step further, and allow you to reinvest dividends automatically in the purchase of new shares. These plans are referred to as Direct Re-Investment Plans, or DRIPs.
This will enable you to maintain and grow your stock position in a company even if you don’t make further contributions yourself. There may be a charge for this service as well, but it's in the form of compounding interest in the same investment, even though you are doing it through dividends.
Companies That Offer Direct Purchase
You can check with any company that you're interested in investing with for the long-term, to see if they participate in a DSP plan. Chances are good that any well-known company will offer the service, including the DRIP feature.
Another way to locate companies that participate in the plan is to go through a site such as Computershare. They have a fairly long list of companies that offer this type of plan, as well as a description of the plan and fee structure for each company.
Much like the purchase of mutual funds and exchange traded funds, there are various purchase minimums and different fees that apply to each company. Computershare allows you to view all of this information on a single website.
Do you prefer to hold some shares directly in a company?