Buying Stocks

There is no question that being an equity owner (stockholder) is an excellent method to create wealth over time. In fact, you may already be a stockholder right now and not know it. If you are part of a retirement or pension plan at your work, you own stock indirectly through these funds. Perhaps you do not have such a plan--and even if you do--you may still want to start buying stocks.

Owning equities (buying stocks) should be a part of any balanced investment portfolio and asset allocation. In addition to buying stocks, you should balance your portfolio with fixed-income securities and cash. Buying s tock means acquiring ownership (even one share). As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares.

In today's vibrant markets and given the advancement of technology, there are more choices than ever for how you can buy stocks. Whether you are looking for blue chip stocks or are interested in buying speculative penny stocks, you need to know the options available to buy stocks.

When a company wants to raise capital through a sale of stock, it does so through an investment bank that then distributes this stock to several brokerages that are licensed by state law to buy and sell securities. Unfortunately, you cannot buy a company's shares directly from a company when it issues shares. Instead, there are brokerages that specialize in buying and selling stock and have the people and technology to do so in an efficient manner. So, the simplest and most common method to buy stocks is to use a stock brokerage.

There are generally three types of stock brokerages :

• Full-service brokerages --these firms assign you a stock broker that assesses your financial objectives and offers you investment advice. A stock broker can help you make investment decisions and help manage your account. Full-service brokerages also provide their clients investment research and analysis. You are charged a fee each time you buy or sell a stock to pay for these services and for the execution of your sale or stock purchase.
• Discount brokerages --these firms do not assign you a stock broker and provide little in the way of personal attention, investment guidance or account management. You can buy and sell as you wish and you will also pay a fee each time you buy or sell a stock, however, the fees for buying stocks and selling stocks are much less.
• Online brokerages --these firms are essentially discount brokerages that provide their services online. With the development of the Internet, the ability for an investor to access information quickly and to execute transactions cheaply and rapidly dramatically improved. Typically the fees for an online brokerage account are cheaper than most full-service and discount brokerages.

While you cannot buy stocks directly from a company, if you are an existing shareholder, you can buy additional shares through Dividend Reinvestment Plans (DRIPs) www.dripcentral.com and Direct Investment Plans (DIPs) www.sec.gov/answers/drip.htm These plans allow their shareholders to purchase stock directly from the company for a minimal fee. DRIPS are a great way to invest small amounts of money at regular intervals .

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