Direct Stock Purchase Plan (DSPP)
Candlefocus EditorWith direct stock purchase plans, investors can purchase stock in small amounts regularly, over a course of time. This strategy for investing is often referred to as "dollar cost averaging" and can yield positive results over the long-term as it puts the power of compounding to work for the investor. Most plans require the investor to commit to regular investments in specific increments, such as monthly or bi-weekly payments.
Some direct stock purchase plans have no fees, however most of them have small fees. Investors should be aware of all fees associated with enrolling in a particular plan and make sure they're comfortable with them prior to signing up. It's also important to make sure that they're able to meet the minimum purchase amounts and frequency that the plan requires.
Direct stock purchase plans are an attractive option for investors who want to leave the mechanics of stock trading to a reliable and reputable company. They offer a hands-off way to grow your portfolio, particularly in the long-term, while avoiding the costs that come with trading through a broker. For this reason, they are especially ideal for novice investors with no or limited experience in the stock market.
Overall, investing via a direct stock purchase plan has its attractive advantages such as the cost savings and the ability to start investing with lower levels of money upfront. Additionally, DSPPs are often an attractive way to save for retirement, as they offer direct contributions from investors’ paychecks, as well as the potential for dividend reinvestment. This way, investors can reap the benefits of automatic investments and compounding which can be a great way to accumulate wealth over time.