Direct Investment Plans

Direct investment plans can be a cheap and effective way to invest. One of the biggest advantages of the direct investment plan is that it skips the middle man -- stockbrokers. Skipping the middleman can save significant costs because in many of the direct plans there are no purchasing fees.

There are two types of investment plans - DSP (Direct Stock Plan) and DRIP (Dividend Reinvestment Plan).

What is a Direct Stock Plan (DSP)?

A DSP buys the stock directly from a company on a regular basis. You can usually save big on commissions with a DSP. However, there is usually an initial fee to setup and you typically need to already own a share or 5 before you can enroll.

DSPs vary from company to company. You will need to read and fill out the disclosure paperwork to make sure there isn't some nasty fine print. Having to deal with extra paperwork is a major drawback.

Another typical feature of direct stock plans is that you cannot buy at any time of the day. It is usually a regularly scheduled day and time. Again, it depends on the details of the plan.

How do you enroll in a DSP?

First, decide on a company that you want to invest regularly in. Then go to their website or call their investor relations and ask about direct stock plans. Most companies don't offer DSPs, but many of the big companies do.

For example, Wal-Mart offers a direct stock plan. I did a google search for "walmart direct stock plan" and found "To receive information about Walmart’s direct stock purchase plan, including a prospectus and enrollment form, contact Computershare by calling (800) 438-6278 or by visiting www.computershare.com." Link (new window).

What is DRIP investing?

Check out DRIP investing here.

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