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Direct investment plans offer the brokerage binary options how to trade the news that those investors are seeking.
If your primary investing goal is to acquire a single company's stock as directly as possible, one of these plans can help you achieve that goal, but be aware of the drawbacks that come with avoiding brokerage services before you abandon them completely. These plans were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company.
Investors buy-in by transferring money from their checking or savings account. The company will establish minimum investment amounts, both for the initial purchase and for any subsequent purchases. These are similar to direct stock plans, except that they automate the process of buying more stock over the years.
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DRIPs automatically take cash dividends paid out by the company you own and use them to buy more shares. Depending on the specifics of the plan, this service may be free or there may be small commission fees. If you are fortunate enough to have such an arrangement, DRIPs don't have as much appeal.
Dividend reinvestment plans are often coupled with cash investment options that resemble direct stock purchase plans. This gives you the ability to buy more stock whenever you want, not just the four times a work on the Internet without purchases and investments dividends are issued.
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The Benefits and Drawbacks of Direct Plans The primary advantage of avoiding brokers and buying directly from a company is simplicity. Apps and websites have significantly streamlined the broker experience, but an investor still has to choose between securities and make decisions about the type of order to place for those investments.
Direct stock purchases and dividend reinvestment plans can be even more simple—just send the money to the right place and you're enrolled in the plan.
When you invest through a brokerage, any notices from the company will come through the brokerage. For investors with a variety of investments, company notices blend together because they all appear in your inbox as a message from your brokerage, rather than the company.
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This could lead to some investors skipping messages altogether, potentially missing out on useful information. By communicating directly, the company and its investors remain in better contact.
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Institutional investors may have access to extra benefits through direct stock purchase plans, depending on the company issuing the stock. Special "waiver discounts" allow institutional investors to buy shares at a discount that isn't broadly advertised.
If you sign up for a Home Depot direct stock purchase plan, for example, you will only have the option to buy Home Depot stock.
An investor with a brokerage account and an investor with a direct stock plan could acquire the same Home Depot stock at the same price, but the investor with the brokerage account could also acquire any other security the brokerage services.
Traditionally, direct plans have also enjoyed the benefit of commission-free, or low-commission trades, especially when compared to the costs of using a full-service broker. However, that benefit has largely vanished in the digital era.
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Many brokerages—even major firms like Fidelity and Charles Schwab—have dropped their commission fees for online trades. Direct stock plans also impede an investor's ability to time trades.
Cashing out your position isn't as simple as tapping a few buttons on a brokerage app. This is fine for buy-and-hold investors who plan on holding stocks for decades.
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Investors who mostly care about dividends will also likely feel content with direct plans. Investors who trade often and enjoy regularly rebalancing their portfolio, on the other hand, will be frustrated by the limitations.
The Balance does not provide tax, investment, or financial services and advice. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.