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

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.

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Read/Post Comments (10) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 26, 2014, at 3:35 PM, stockdissector wrote:

    Hey Blake,

    Great advice on the Direct Stock Purchase Plans. Without putting in a free plug, I do business with a brokerage company that charges $6.95 per real time trade if executed over the internet. Of course to make it less than 2% you would need $348 per month or more to invest that way. If you schedule an investment a week or more in advance it charges $4 per transaction bringing down that amount to $200 per month or to equal 2% or less of transaction. Also dividends which now runs in the thousands per year for me gets reinvested for free which really lowers my transaction costs. This brokerage account could conceivably enable a person to build their own mutual fund without the much vilified management fees. Personally I find it easier to use this brokerage company however, if an investor wants to research DSPPs they may find a better deal than even the brokerage company I am dealing with.

  • Report this Comment On March 26, 2014, at 3:40 PM, stockdissector wrote:

    Let me clarify if an investor wants to invest in Mutual Funds they may get charged a transaction fee in addition to the management fees charged while they HOLD their investment whereas there is no cost in holding an individual investment in some brokerage accounts.

  • Report this Comment On March 26, 2014, at 4:04 PM, Jim2B wrote:

    For starting investors I recommend using a low cost mutual fund house. Vanguard has been my favorite over the years.

    Accumulate money in a broad based index mutual fund (e.g. based upon S&P 500). After accumulating several thousand dollars in one fund, begin investing in a complimentary index fund (e.g. a small cap index). Repeat until you have covered several market segments.

    Only after your assets have accumulate and you've gained valuable experience with investing would I recommend investing directly in stocks.

    If your company offers a direct stock purchase plan, then that would be a valuable additional method of getting stock ownership experience.

  • Report this Comment On March 28, 2014, at 4:15 PM, Aelphaba wrote:

    Many many moons ago, The Motley Fool used to run a model DRIP portfolio. If I recall correctly, it held Intel, Pepsi, Mellon Bank (which I guess is now Bank of NY Mellon), Johnson and Johnson and maybe a couple others. Would love to see what that looks like now

  • Report this Comment On March 28, 2014, at 5:24 PM, TMFBoomer wrote:

    Great stuff, Mr. Bos.

  • Report this Comment On March 28, 2014, at 10:24 PM, TMFJCar wrote:

    Good article Blake!

    However, I do have to mention a downside of this type of investing. If you invest at a broker, you get one consolidated form 1099 -- if you direct invest, you will get one form for each investment. On the surface it seems rather innocuous, but if you have 15-20 stocks, the paperwork can be tough because Computershare treats each investment as an individual account (I worked at a brokerage and dealt with this at times) and doesn't mail a "master-account 1099." And if a stock certificate was issued (and especially if the company has underwent a split/merger), it is even harder to deal with. Also, if you move it can be tough doing 15-20 change of address requests. Does that ruin this type of investment, no way. However, a self-directed brokerage with a DRIP can work (provided you can resist the urge to sell every time the market drops) and may be just as cheap.

  • Report this Comment On March 28, 2014, at 10:38 PM, MadStockMan wrote:

    I don't understand how understanding this fee structure for the DSPP is easier than learning how to use a brokerage? And I've been using a brokerage for years now ?!!

    Initial Setup Fee $10.00

    Cash Purchase Fee $1.50

    Ongoing Automatic Investment Fee $1.50

    Purchase Processing Fee (per share) $0.06

    Dividend Reinvestment Fee N/A

    Batch Sale Fee $15.00

    Batch Sale Processing Fee (per share) $0.06

    Batch Maximum Sales Fee N/A

    Market Order Sale Fee $25.00

    Market Order Processing Fee (per share) $0.12

    Market Order Maximum Sales Fee N/A

    Note: Please consult the plan documentation for further details on fees and commissions.

  • Report this Comment On March 29, 2014, at 10:38 AM, Gregory63 wrote:

    Meh, my broker gives me 30 free trades a month, and so far that's more than I ever use.

  • Report this Comment On March 29, 2014, at 9:30 PM, jordanwi wrote:

    I don't have to pay to buy ETFs - so indexing is free at my brokerage. That's pretty much as cheap as it gets for the small-time investor.

  • Report this Comment On March 31, 2014, at 6:14 AM, AlmostEven wrote:

    I get 100 free trades in each of my 4 Brokerage accounts per year through my bank, but there is a minimum amount of $25k I have to keep in my checking, but I like to have it there and pay a small fine if it dips below that. Still, 400 free trades saves me quite a bit.

    They don't offer everything though - I can't trade some mutual funds or BRK-B.

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Blake Bos

The Motley Fool's industrials analyst, I specialize in 3-D printing and also do my best to stay up-to-date in the fields of robotics and oceanic transportation. Follow me on Twitter, Google+, and/or Facebook below for the most important 3-D printing industry developments and other great stories.

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