The growth of online stock brokerage accounts has led to a steep decline in the cost of buying and selling stocks everywhere. The Smart Money 2012 annual broker survey noted that the average discount commission had declined by more than 70 percent since 1994. There are several different ways to invest in stock with little or even no cost.
Online Discount Broker Account
According to Smart Money magazine, the average commission to buy stock through an online brokerage account is less than $8. The cheapest stock brokers charge commissions in the $3 to $5 range. The lowest commission might not always be the least expensive choice, however. To get a true picture of the cost, check for other account fees, the cost to close an account, and what types of services a broker offers. With stock broker commissions you pay the same rate no matter how many shares you buy, so larger purchases are more cost effective than smaller purchases -- particularly if it means fewer trades. You also will pay a commission when shares are sold.
Direct Purchase Programs
Many companies offer direct stock purchase plans, which are sometimes referred to as dividend reinvestment plans. A direct purchase plan lets you make regular investments to buy shares of an individual company. Some companies don't charge anything to set up an account or buy shares. Others charge an account setup fee as well as a fee each time you invest. In addition, most stock purchase plans charge a commission if you want to sell. If you are interested in a particular stock, look for the direct purchase or dividend reinvestment plan information on the Investor Relations pages of the company's website.
No Fee ETFs
Several of the major brokerage firms also offer trades on in-house exchange traded funds (ETFs) without commission charges. The brokers with no-commission ETF trading include Vanguard, Fidelity and Charles Schwab. ETF shares are bought and sold like stock shares and track the major stock indexes. Although ETFs are not individual stocks, the no-commission approach lets you participate in the market at a very low-cost, either for long-term investing or short-term trading.
The different low cost ways to invest in the stock market put you in charge of your investment choices, but you are ultimately responsible for the results. Finding the lowest cost way to buy stocks does not work if you buy stocks that go down in value. Before jumping into the stock market, develop your investment goals and a strategy for selecting stocks. The Securities and Exchange Commission notes that it is quick and easy to buy stocks online, so you should take your time when selecting which stocks to buy.
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.