Thanks to discount brokers and low-cost online trades, it has become more inexpensive than ever before to participate in the stock market. And small investors can even buy stocks without dealing with a broker--and put the money they save to work. Here are a few choices.
* Mutual funds: These are pools of money that invest in a number of different stocks, bonds, or a combination of both. A fund can own hundreds or thousands of different stocks, and there are more mutual funds than there are stocks on the New York Stock Exchange.
Some funds have initial investments as high as $3,000 or more, but if you sign up for a periodic investment plan you agree to invest a certain amount per month, withdrawn directly from your bank account. Depending on the fund, the amount can be as low as $25. Investing regularly also means that since you're buying shares regularly, your purchase price is different every time, which evens out the ups and downs in the price. So you'll buy more shares when the fund's price is low, and fewer with the price is high.
* Direct stock purchase plans/direct investment plans: With these options you buy stock directly from the issuing company itself, and the dividends are automatically reinvested into additional shares of the company's stock (or fractions thereof). Hundreds of companies offer such programs, and most of them are big, stable blue-chip corporations, including IBM, Coca-Cola, Pfizer, and AT&T.
With many dividend reinvestment plans (DRIPS) you need to own at least one share of stock already before you can participate; this you must do through a broker. Dividends are automatically invested into the stock, so you are buying additional shares every time the stock pays a divided.
Direct stock purchase plans (DSPs) also let you buy stock directly and have the dividends reinvested, but often you can start buying shares directly from the company, without purchasing any shares through a broker first.
Some things to note about DRIPs and DSPs: Unlike buying stocks through a broker, you can't choose the time or even the day that you purchase your shares. Companies usually purchase shares for these plans at regular intervals, which can range from once a week to less frequently. So you won't be able to time your purchase or sale to take advantage of share price fluctuations.
And that's the whole point of these plans: investors get cost savings, while the companies get some insulation from the short-term swings of buying and selling that's done on the stock market.
Some companies with these direct purchase plans may charge no fees at all; others may charge a setup fee, fees for reinvesting dividends or making additional purchases, etc. Many of them charge at least a small fee for withdrawing money or closing the account. So it's smart to read the fine print and find out exactly what the fees are for the company or companies you're interested in. For some plans, these fees could eat put a big portion of the dividends you earn.
* Sharebuilder and similar plans: You've seen the ads: "Buy stocks for $2." Can you really buy stocks for that little? Well, yes and no. Sharebuilder.com and other similar companies specialize in handling small investments, and to make up for the extra costs involved they charge a fee (such as the $2) in addition to a commission.
There are a number of options and prices; two of them include a monthly subscription fee. For no subscription fee, you pay $4 per investment and $16 per real-trade. For a $12 monthly subscription fee, you pay $2 per investment (six complimentary ones included per month, and a $15 trade.
Sharebuilder also has an automatic investment plan; with it you can invest regularly through automatic investments, allowing you to buy partial shares of stocks and accumulate your investments over time. Like direct stock plans above, you purchase stocks on a certain day--in Sharebuilder's case, Tuesdays.
Now that you've learned about these ways to buy stocks, how do you find stocks and funds to invest in? Check out the major financial sites like Money.com, and Yahoo! Finance. The financial Web site Morningstar.com has a wealth of useful information on stocks and funds; while it has many services restricted to members, you can find a lot of free articles and research.
For print resources, consider publications such as Money magazine, Smart Money, The Wall Street Journal, and the financial newsweekly Barron's.
Investing in the stock market can be fund and rewarding, in more ways than one. These three ways prove that you don't have to be a bigwig to get started. Good luck, and happy investing!
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