Buying stock can put you on a path to building wealth. However, broker commissions and fees can put a significant dent in your wealth over time. If you are comfortable managing your own portfolio, you can reduce these costs. Find out how to buy stocks without a broker.
What is a broker?
A broker is a human being who facilitates the purchase and sale of shares and other securities on behalf of its customers in exchange for a fee. Brokers are experienced and trained to manage your investment portfolio. Brokers build relationships with their customers to understand their investment strategies and better manage their portfolios.
Brokers charge a commission on each stock and security trade. Clients may also pay an advisory fee for portfolio management or investment advice.
As an investor, you may prefer to trade stocks through a broker. But you don’t have to use a broker to buy and sell stock. Whether you prefer to manage your own portfolio or just want to keep your investment costs down, you can buy stocks without a broker.
Benefits of buying stocks with a broker
A stockbroker facilitates the purchase and sale of shares and other securities on behalf of customers. Brokers build relationships with their customers to better understand their financial needs and goal. With their training and experience, brokers can offer clients trade advice and suggestions, such as what to invest in and when to buy and sell. However, using a broker can be costly because you pay them a commission every time you buy, sell or trade shares or securities.
How to invest without a broker
It’s possible to buy stocks without a broker if you don’t need the services of a stockbroker.
Brokerage account
You can skip the traditional brokerage account and open one online through a financial institution. Buying stocks online without a broker is possible through an online brokerage account. These accounts are easy to open and give you the flexibility to buy, sell and trade a variety of stocks and securities.
Online brokerage accounts remain popular because of their low cost. Many online accounts charge few or no fees on some trades. Not only can you invest in an array of stocks and securities, but online brokerage accounts also work well for short- and long-term investment strategies.
Online brokerage accounts have a few drawbacks. You won’t get a broker’s experience and personalized advice when you buy stocks on your own. Additionally, you will need to do your own research before you buy, sell or trade.
Retirement plan
Another way to buy stock without a broker is through your retirement account. You can purchase stock through an individual retirement account (IRA) or an employer-sponsored 401(k) plan. And if you earn dividends or realize a gain from a stock sale, any tax due is deferred as long as the investments remain in your account. Just keep in mind that you pay income taxes on withdrawals from Traditional IRAs and 401(k)s when you retire.
The fund manager for your 401(k) plan usually selects the stocks, bonds, exchange-traded funds (ETFs), bond funds and mutual funds you can buy. So, while you can buy stock through your 401(k) without a broker, your choices may be limited.
If you would like more freedom to buy stocks, bonds, mutual funds and other securities of your choosing, an IRA may be a good option for you. These accounts offer tax benefits and let you buy stock without going through a broker.
Direct stock purchase plan
Instead of going through a broker, a company can allow investors to buy its shares directly. With a direct stock purchase plan (DSPP), investors transfer funds from their bank account. The plan administrator then uses this money to buy shares at their average market price.
With a DSPP, the company sets a minimum investment amount for an investor. Sometimes the minimum is lower than the share price. So, even if you can’t afford to buy one share, you can still invest in a small piece of the company. Another benefit of buying stock through a DSPP is streamlined communication. Instead of the broker passing along the information to you, it comes directly from the company.
The downside of a DSPP is that you can only buy stock from that company. Cashing out might take longer when you purchase stock through a direct plan. So, if you plan to buy and hold the stock for years, a DSPP may be a good fit. But if your goal is to regularly sell your stock, going through a broker or opening an online brokerage account may be a better option.
Robo-advisor
A robo-advisor is a digital platform that provides automated financial planning services. You complete an online survey that inquires about your investment goals and financial situation. Based on the results, the robo-advisor relies on algorithms to invest your funds.
Robo-advisor accounts are easy to set up and offer services such as portfolio management and goal planning. Compared to traditional brokers, robo-advisors provide such benefits at lower fees and lower account minimums. The 24/7 access makes trading without a broker easy. However, you may find fewer investment options using a robo-advisor than if you go through a traditional broker.
Dividend reinvestment plan
Buying stocks without a broker is possible through a dividend reinvestment plan (DRIP). With a DRIP, your earned dividends are used to buy more shares. By reinvesting your dividends, your ownership of that stock grows without contributing more cash. Keep in mind that the dividends you earn can only be reinvested in one company’s stock. And you will still pay taxes on the dividends you make, even when reinvested.
You Don’t Need a Broker to Buy Stock
While using a broker has its advantages, you don’t necessarily need one to invest. Online brokerage accounts, robo-advisors and other programs remove some barriers that traditionally prevent people from investing independently. Not only can you buy stock without a broker, but you also avoid paying expensive fees and commissions.
Can I directly buy stocks without a broker?
You can buy stocks through an online brokerage account or robo-advisor without going through a stockbroker. You can also purchase stock without a broker through your retirement plan or if you participate in a DSPP or a DRIP.
How do beginners buy stocks without a broker?
Beginners can buy stock through a robo-advisor, DSPP, DRIP or online brokerage account without using a stockbroker. As a beginner, you can also buy stock through your IRA or 401(k) without going through a stockbroker.
What is the best way to buy stocks?
If you want to manage your own portfolio and avoid using a broker, you can buy stocks through a robo-advisor or an online brokerage account.
Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
