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In this book, you'll learn how to avoid brokerage fees and account minimums by purchasing stock directly from companies for as little as $50 to start and as little as $25 per month. You'll also learn how these small, regular investments can build significant wealth ...
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In this book, you'll learn how to avoid brokerage fees and account minimums by purchasing stock directly from companies for as little as $50 to start and as little as $25 per month. You'll also learn how these small, regular investments can build significant wealth over time. This book lists details and contact information for more than 1,000 direct investment plans, and even lists the industries and companies to strongly consider for direct investing.
Not many people have heard of direct investment plans, but don't let that stop you from investing in terrific companies without paying a dime in commissions. Direct investing is easier than you think, and we'll show you just how easy it is.
If you're enrolling in a direct stock plan, it's as simple as finding the minimum investment requirement and the plan's address (both of which are provided for each company in Part II of this book) and sending in your money. Direct stock plans are that easy to start, and dividend reinvestment plans aren't much more difficult.
Enrolling in Dividend Reinvestment Plans (DRPs)
When you know which company you want to invest in, find out how many shares are required to join its DRP In most cases, it's one. When you're ready to invest, look at the direct investment plan information and phone numbers in this book. Call the companies you're interested in and request plan enrollment forms. (Note, however, that some companies won't send you the enrollment materials until you are already a registered shareholder.)
Aside from needing to own at least one share of stock to enroll in a DRP, the stock must be registered in your name, not in a brokerage house's name, not in your dog's name, and not even in your Uncle Bob's name. The stock certificate must be registered in your name to prove that you're a shareholder.
If you have a discount brokerage account, you can use it to buy the shares of stock necessary to enroll. If you already own shares in the company, you're set. Just have a broker register the shares in your name. Usually stocks are bought in a brokerage house's name (this is called "street name") and kept collectively in the house's account. You'll need to contact your brokerage house to request that the stock be registered in your name. When the stock is registered in your name, the certificate is often mailed to you and you're usually charged a small fee, but the certificate enables you to enroll in a dividend reinvestment plan.
The fee for placing a stock certificate in your name and having it mailed to you varies from broker to broker, but it generally costs from as low as $7 to as high as $50. Investors on The Motley Fool's message boards tend to favor the discount broker E*Trade (at www.etrade.com), because it charges a low $5 fee for stock certificates, and SureTrade (at www.suretrade.com), because it requires no minimum balance and it has no charge for stock certificates. Other brokers also charge no fee for this service, such as Waterhouse and Discover, but they have a minimum $2,000 deposit requirement to open an account. If you have a broker, ask what it costs to have shares put into your name.
Most brokers require minimum balances to open and maintain an account - and if you're only going to be investing in DRPs, you don't want that. A broker is just your way to buy the first necessary shares to enroll in a DRP. Grab the Yellow Pages or financial magazine or newspaper, or visit The Motley Fool's Discount Brokerage Center at www.fool.com (specifically at http://wwwfool.conVmedia/DiscountBrokerageCenter/DiscountBrokerageCenter. htm) to see which broker suits you.
After you've found a discount broker, buy the necessary stock. Buy it online, if possible, because the commission is usually lower. (Smile. This will be one of the few commissions you'll ever pay on your investment.) If you can buy more than one share and want to, don't be shy about doing so. You can begin most DRPs with a minimum of one share and there's no maximum - you could buy 1,000 shares and enroll them all into a DRP. After your online purchase, call and inform the broker that you need the stock you just bought registered in your name. Or, if you're buying the share on the phone rather than online, tell them (as you're buying it) that:
1. You appreciate doing business with them;
2. You better get a smokin' good price on this stock; and...
3. You need the stock certificate registered in your name. Please.
The stock will be registered to you and the certificate will be mailed to your home within two to six weeks. Most direct investment plans will hold stock certificates for you (this is called "safekeeping"), so you'll probably want to mail your initial stock certificate to the DRP agent when you join. However, if you'd rather frame it and hang it above the bed, go ahead. Once you've become a registered shareholder in your company, you can enroll in its DRP even if you burn the stock certificate. Burning it isn't advised, however. Having the initial stock certificate kept with the direct investment plan's agent is the preferred route, because losing or burning your certificate results in paperwork to receive a replacement.
(Note that some companies, including Coca-Cola, accept your first share of stock directly from the stockbroker, so it needn't be mailed to your home first. When this option exists, ask the stockbroker to put the certificate in your name and transfer it to the company in which you wish to enroll. This simplifies the process.)
The DRP enrollment form is usually one page long. You provide your name, address, social security number, date of birth, favorite foods, etc. You'll also enter your dividend reinvestment preference (full reinvestment of dividends is ideal).
After you fill out the enrollment form, mail it in (typically with the stock certificate you received from the broker enclosed). After your enrollment has been mailed, congratulate yourself. You've done what you need to do to begin a DRP, Sit down and have a tall glass of lemonade. And then begin to wait.
And wait. And wait. And wait a little bit longer.
Wait a few weeks, usually no more than four, and you'll be enrolled in the company's DRP. If you haven't received mail from the company in six to eight weeks, call the company and give them your social security number to get your DRP account number, otherwise you'll probably have to wait until the next quarterly dividend payment to receive a DRP statement. Once you're enrolled and know your account number, you can begin to send additional investments (optional cash payments) immediately, and your dividends can buy more shares for you, too. In other words - you're on your way!
Enrolling in a DRP only takes a few steps:
1. Research company plan requirements and call for DRP enrollment forms.
2. Buy the initial share or shares of stock that you need to enroll in your chosen company's DRP
3. Have the share(s) registered in your name.
4. Once your shares are registered, fill out the DRP enrollment form and mail it to your company or its transfer agent, as directed.
Not hard. Still, you've got to admit that marrying someone who's already enrolled is attractive. That would be easier.
Enrolling in Direct Stock Plans (DSPs)
Starting a direct investment plan that allows you to join before owning any shares is very simple. Many companies are moving away from the DRP format in favor of the DSP format.
To enroll in a DSP, get the plan information from this book, call the company for enrollment forms, and mail your check.
Presto. What could be simpler?
In contrast to DRPs, DSPs are incredibly simple to start. As we discussed earlier, however, DSPs usually require more significant initial investments (at least a few hundred dollars) and they have start-up fees averaging around $15. Also, unfortunately, more of these plans have ongoing fees compared to DRPs, so investigate any fees for optional cash payments and dividend reinvestments before enrolling, and aim to keep fees below 2% of any transaction's total value. Ideally, invest in plans without fees...