What's the Cheapest Way to Research and Buy Stock?

If you have the right know-how, trading can be a very lucrative and profitable business. But even the most seasoned investor can benefit from saving a few dollars here and there—especially when it comes to fees and commissions.

There is a huge range of service providers investors can use to get investment research and execute trades in a cost-effective and timely manner. Some information providers are free, while others are subscription-based.

Key Takeaways

  • With the surplus of information available online, anyone can research and become more knowledgeable about investing.
  • Start the research process by accessing information from financial news websites, and the online arm of financial firms or investment hubs.
  • Discount online brokers are typically low cost, while the full-service brokers are pricier but often provide more guidance for investors.
  • Direct stock purchase plans (DSPPs) let you buy stock directly from a firm without a broker; they are often a comparatively inexpensive option.
  • If you buy stocks that pay dividends, resist the urge to take them in cash; instead, opt for the company's dividend reinvestment program (DRIP).

Start With the Basics

Websites such as Investopedia and Yahoo Finance provide investors with a vast array of free stock information such as company financial statements, key earnings ratios, and recent company news. This "raw data," however, is only useful if the investor is knowledgeable in what the information is conveying. For example, knowing a company's P/E ratio is only useful if the investor understands the ratio's underlying concept.

There are many variables to weigh when considering stock buys and the decision-making process can be complex. Due to the sheer volume and complexity of this raw data, subscription-based advisory and analyst services can be extremely useful because they help disseminate and analyze raw data for investors. These types of services provide market analysis as well as potential stock picks based on their analyses of a wide range of companies and industries.

Educated Stock Executions

The most inexpensive way to purchase company shares is through a discount broker. A discount broker provides little financial advice, while the more expensive full-service broker provides comprehensive services like advice on stock selections and financial planning. If you use some of the free information sources or subscription-based analysis services in combination with the discount broker, it is possible to keep costs relatively low.

The more you educate yourself about the financial world, the less you will have to rely on investment advisors or full-service brokers. The more comfortable investors are with the stock market, the greater the benefit from going with a discount broker or online broker such as Scottrade and E*Trade, where fees can be as low as $5 to $10 per trade. That's compared to full-service brokers where fees can be several hundred dollars per trade. And lower commissions means you'll have more money to invest.

Company Purchase Plans

If you're looking for a cheap and easy way to buy stock, consider direct stock purchase plans (DSPPs). These plans let you buy stock directly from the company without the need for a broker. The best part is that they often come with low fees and your purchases may even come at a discount. This is a great option for novice or first-time investors because the minimum deposit can be as little as $100, depending on the company. 

A few things to keep in mind though. When you make a purchase through a DSPP, you sign up for monthly deposits. That means you forfeit any control over the prices at which the trades are made. You may end up getting a lower number of shares if the company's stock is trading higher.

Secondly, you may be required to use the services of a broker if and when you decide to sell your shares. That means you'll have to cough up a commission fee at some point. And if you're looking for diversification, you'll want to enroll in a few different plans.

Whether it's a broker, an app, or anything else, be sure to do your research to see if the investing platform you've picked is right for you.

Reinvest Those Dividends

If you invest in stocks that pay back dividends, make sure you enroll in the company's dividend reinvestment program (DRIP)—no matter how alluring it may be to take them in cash. By taking part in the DRIP, you're putting what you're earning back in to buy more shares. And most plans will either charge you a very small fee—some cost nothing at all. Consider the fact that typical companies pay out dividends four times a year. So reinvesting them at little to no commission is a pretty sweet deal.

Signing up for a brokerage account, an app or direct purchase plan may help, but your best bet is to do your own research: you're in charge of your money, and only you know how much you have to invest, your risk tolerance, and your goals.

New Technology

Since you can do pretty much anything with a smartphone or tablet, why not buy and sell stocks with it, too? There are a variety of apps available that allow traders to do business for free or on the cheap.

Robinhood is an app that gives traders access to more than 5,000 stocks and ETFs with no commission. There is also free real-time data and execution of trades is relatively quick. You can also trade on a margin account, but that comes with a flat fee based on the debit balance. But since you're getting a pretty no-frills service, you should know you won't get access to the research or other tools a traditional brokerage service provides.

M1 Finance offers an app as well as a desktop platform. It has two different subscription services. The free, standard service comes with a variety of frills including an investment account, unlimited free trades and the ability to trade fractional shares.

You can also build a custom portfolio with M1 Finance, or you can choose from one of 80 expert portfolios. The other option costs $50 for the first year and $125 each year after that. It comes with the same perks as the standard account with a few extras such as two daily trading windows instead of the standard one. The catch to both of these accounts is that they require a $10,000 minimum portfolio balance.

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