If you are buying large amounts of stock, paying $8 or $10 as a commission has little effect on your investment results. However, if you want to start small and build a stock portfolio, the lower the costs, the sooner you will start to make a profit on your investments. There are several ways to get started with individual stocks where the costs and minimum investments are low.
Direct Purchase Plans
Direct purchase plans and the closely related dividend reinvestment plans offered by individual companies are the traditional way to start buying stocks with small amounts of money. Companies set up these plans so investors can make regular investments to buy shares and to have dividends reinvested into more shares. Locate information about specific company direct purchase plans on the investor relations webpages of company websites. The third-party administrator services for such plans also provide online lists of direct purchase and dividend reinvestment plans. The two largest administrators are American Stock Transfer and Trust Company and Computershare Ltd.
Comparing Direct Purchase Plans
The minimum investment amounts and fee structures for direct purchase stock plans are set by the individual companies and vary significantly. It is possible to find plans that have no fees to invest money if you set up regular purchases. The no-fee plans usually require you to authorize automatic investments using automated clearing house -- ACH -- deposits out of a bank account. This initial investment amount may be higher with lower additional investments. For example, a company's plan may require an initial investment of $250 and subsequent investments of at least $100.
Broker Dividend Reinvestment Plans
There are a few companies that act as brokers and allow you to purchase small amounts of stock on a regular basis for a small fee. These plans go by names such as Sharebuilder or Buy and Hold. With these programs you can buy any stock you want and have any earned dividends reinvested. The cost can be as little as $1.00 per investment. A plan like this may make sense if you want to buy shares of several different stocks each month or to buy stocks that do not have direct purchase plans.
Discount Brokerage Account
Stock commissions of $4 to $5 from online discount brokerage firms are becoming more and more common. Combine a low commission with a broker that does not require a minimum account balance and you can set up your own small amounts investment plan. Add money to the account every month and buy shares of stock when you have built up a few hundred dollars in the cash balance. Some brokers even allow you to request reinvestment of dividends at no cost.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.