The 1 Way Ordinary Investors Can Escape Wall Street's Brutality

Investing is an incredibly challenging endeavor. Direct stock purchase plans could be the recipe for success.

Mar 26, 2014 at 2:34PM

Distraught
The realization that you've been duped by Wall Street once again.

Ordinary investors need to take three important steps to make sure they don't get brutalized by big ol' Wall Street:

  1. Make sure you're not paying too much money for someone else to purchase an investment for you.
  2. Don't try to time the stock market. Invest in regular intervals -- every month, if possible.
  3. If any investment pays a dividend, be sure to reinvest those payouts into more stock using a dividend reinvestment plan (DRIP).

For investors new and old, these three steps are challenging. New investors are bombarded by complicated brokerage accounts and trading platforms right from the start.

These trading platforms require users to understand investing concepts like duration, order types, and price types before they can even buy a stock.

Even worse, if an investor is unable to invest a large enough amount of money, the fees Wall Street charges will slowly and surely cause his or her investing results to fall behind the pros'.

Then you have those dividends. What are they exactly? When do investors get them, and what's a DRIP? These are valid questions for anyone just getting started and for experienced investors as well.

Behold your investing savior: the direct stock purchase plan
Starting to invest is intimidating, but there is one way for investors to avoid all of the confusion outlined above. All an investor needs to do is to participate in a direct stock purchase plan, or DSPP. These allow individuals to invest directly in a company's stock without going through a traditional brokerage account.

Through DSPPs, investors can invest in more than 500 companies (see table below) at regular intervals, cheaply, with dividend reinvestment, and without the complications of opening a brokerage account. Computershare and American Stock Transfer and Trust Company, for example, allow investors to use DSPPs. Their websites include extensive lists of companies whose shares can be purchased through DSPPs.

While DSPPs offer a variety of benefits, they aren't without their own pitfalls. With DSPPs, investors can only invest in a small fraction of the equities on the U.S. markets. Also, DSPPs aren't made for speedy transactions, so if an investor needs to enter or exit positions quickly, a DSPP is probably a bad choice.
Lastly, investors will want to make sure the monthly investment fee is less than what they would have to pay at a discount brokerage and below 2% of the monthly purchase amount. So if an investor is purchasing $100 per month, he or she wouldn't want to pay more than $2 to purchase that amount of stock.

Hands-on with DSPPs
I personally purchased shares of International Business Machines (NYSE:IBM) three days ago through Computershare, and it took a whopping five minutes. Now, I'm set up to regularly invest each month and automatically reinvest dividends, and I'm only paying Computershare a dollar a month to do so. Keep in mind that investors are typically charged an initial set up fee -- $10 for IBM -- to open an account. This is reasonable and negligible over the investment's lifetime.

In the video below, I'll go over exactly how these plans help investors succeed, how you can participate in them, and how they've helped me personally. Don't be intimidated by DSPPs; they're an investor's edge against an inscrutable (and sometimes unscrupulous) Wall Street.

Feel free to comment below with any questions.

Who Doesn't Love a Dividend?
One of the secrets that few finance professionals will reveal is the fact that dividend stocks, as a group, handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Blake Bos owns shares of International Business Machines. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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