How To Buy Stocks For FREE*!
*OK you caught me – it’s almost free – you have to pay $10 to the nice person who agrees to sell you your first stock.
But that’s it!
After that you can buy as many shares of the company as you wish for as long as you like.
HOW IS THIS POSSIBLE??
I know what you’re thinking:
If I want to buy shares in a company on the stock market I have to:
- Get a brokerage account.
- Pay commissions every time I buy something.
- Those commissions could be as high as $25 each time if I have little to invest
- Pay account maintenance fees
- And with high commissions like that I better buy a lot all at once to make it worth my while.
Well guess what?
You don’t have to do any of that.
You don’t need a brokerage account.
You don’t have to pay commissions.
You don’t have to pay account fees.
IN WHAT MAGICAL WORLD CAN I DO THIS??
In the world of Share Purchase Plans (SPPs) and Dividend Re-Investment Plans (DRIPs).
There are a handful of Canadian companies that have decided to make it easy for their existing shareholders to buy more shares and to automatically reinvest the dividends paid out each quarter.
An SPP allows a shareholder to purchase shares at regular intervals, say monthly, via cheque or preauthorized debit (PAD), directly from the company’s share agent.
A DRIP allows a shareholder’s dividends to be automatically used to buy more shares instead of being distributed to the shareholder via cheque.
Together the SPP/DRIP combo means you can set up a monthly purchase of shares and watch as your shares are automatically purchased and your dividends are automatically reinvested.
AND IT COSTS YOU NOTHING.
OK SO ARE YOU GOING TO TELL US HOW TO DO THIS ALREADY? I’VE BEEN HOLDING A $10 BILL IN MY SWEATY HANDS SINCE YOU SAID ALL I NEED IS $10!
Ok, here’s how it works:
- Look at this list to find Canadian stocks with both SPPs and DRIPs. Also look for the pre-authorized debit(PAD) option and whether you can afford the minimum investment – a few are $1,000, which could be a bit much if you are starting out.
- Do your research and choose the stock you want to buy.
- You need one share to become a shareholder.
- Go to this site and find someone who will sell you one share. Read the Caution to Newbies post and Share Exchange Guidelines at the top.
- You may want to meet up with the person if possible, just so you feel comfortable buying a share from them. Most people are there to help, but be careful!
- They will need some personal information from you to fill out a share transfer form.
- When they are ready to make the transfer you will both agree on a reasonable price for the share, based on the market value that day.
- You will add a $10 handling fee on top of the agreed share price, to compensate the person for their trouble.
- Figure out the best way to send the total to that person and they will make the share transfer.
- Sit back and wait for your share to arrive! (Maybe 2 weeks if everything goes well.)
CONGRATS, YOU OWN A SMALL PIECE OF A COMPANY!
Once you have your share, you should be able to register online with the share agent and sign up for the SPP and DRIP.
Check the company info to know when your purchase deadline is for the period, if you want to make random purchases. Or just set it up to deduct the same amount monthly from your bank account so you don’t have to think about it.
IT’S NOT A PERFECT SYSTEM
You don’t get to choose the price at which you buy your shares through the SPP.
They collect your money and buy the shares on a specific day each month or quarter.
But this is good. You’re not doing this to time the market.
These are generally safe stocks that have been paying increasing dividends for many years.
You buy these stocks to add some dividend income to your portfolio and diversify a little bit.
You can’t hold these stocks in an RRSP or TFSA. You need a brokerage account for this.
It’s good to have some investments outside your registered accounts.
And the dividends are taxed at a very low rate.
HAVE YOU ACTUALLY GONE THROUGH THIS PROCESS?
Yes, I have purchased 4 stocks this way:
So 2 banks, 1 energy, and 1 insurance/financial services. I consider these companies to be very stable.
And they pay me dividends 4 times a year.
If you don’t know what it’s like to get dividends, let me tell you a secret…
DIVIDENDS ARE AWESOME
Every quarter I get paid for owning shares in these companies.
In October, I got $28 in dividends from one of them. That’s $112 per year from just one company.
Now $112 might not seem like a lot of money, but it’s $112 that I didn’t have before, and I didn’t have to do anything to get it, except invest my money in stocks that will probably also increase in price.
Think about that.
Most people buy stocks and hope they rise in value. I’m buying stocks, and I also hope they rise in value, which they probably will over time, but I don’t care about that.
I’m buying the stocks for the dividends. Any increase in price will be a nice bonus.
And, get this, that $28 is automatically used to buy more shares. Even fractions of a share.
So the next quarter, my dividends will be slightly higher, even if I never put another dollar into the company.
And I pay nothing for this service.
DON’T GO SPENDING YOUR LIFE SAVINGS ON STOCKS NOW
I love the dividends, that’s clear. So it’s nice to have some dividend-paying stocks
But only a few.
To be clear, BMO, BNS, FTS, and IAG make up only 2% of my net worth, each.
That’s a small amount.
92% of my net worth is invested in other things.
A diverse portfolio of things.
Some of which pay dividends too, but they are dividends I don’t really see so they are not as awesome.
YOU DON’T HAVE TO PAY FEES
The point of my telling you about this is to let you know that you have options.
If you hate fees like me, or are intimidated by the process of setting up a brokerage account and having to buy and sell things and worry about that, you have options.
Maybe the SPP/DRIP process seems like a waste of time to you, and that if you want to buy a stock, you just pay the fees and do your own thing.
That’s totally fine, but now you know you don’t have to do that.
The worst thing is to do something you don’t want to do, because you think you have no choice.