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How To Buy Stocks Commission-Free

This article is a simple guide on how to buy stocks commission free. You have many options when it comes to putting your money into investments. But if you’re a new investor, it’s best to not waste small amounts of cash on commissions and fees. Luckily, investors have a few very good and legitimate options to buy stocks for free, often starting with as little as $10 to buy stock.

Note: As of May 22nd, 2017, Loyal3 is no longer operating and has been removed from this article. 

In this article I’ll be discussing:

  • Brokerages with no fees (Robin Hood)
  • Stock investing through index funds at brokerages that allow you to trade ETFs for free (such as TD Ameritrade)
  • Direct Stock Purchase Plans (DSPP), also known as DRIP investing (Dividend Reinvestment Plans)

How To Buy Stocks Commission Free

No-Fee Online Stock Brokerages

It sounds too good to be true, but no-fee brokerages are out there and gaining popularity. Online you can find a few no-fee brokerages that allow you to buy and sell stocks and pay no transaction fees. These companies primarily make money by finding other sources of revenue (i.e. margin fees) instead of charging the customer trading fees.

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Robin Hood

Another newer brokerage house gaining popularity is Robin Hood. This company calls itself a zero-commission brokerage. And it is. You can make trades from you phone and the company does not charge a commission. This is a start-up, so the business model hasn’t been entirely proven yet. But for now, you can trade there without any fees.

Robin Hood plans to make its money a few ways. First, it will collect interest on idle cash. Second, it plans to offer margin trading. That is a service provided by most full-service brokerages where the investor borrows money to trade and pays interest to the broker. They have some other potential income streams but that doesn’t concern investors. As long as it is free, let’s not complain!

Robin Hood has a few downsides. Research is certainly limited compared to an online broker like TD Ameritrade or E*TRADE. But there are plenty of other places to do research, such as Morningstar or Yahoo Finance. Another downside is trading is only available by smartphone. They haven’t built out a desktop trading platform. This is a way to save on costs.

But trading via a smartphone is natural and sufficient for most younger people. I buy stocks on my phone all the time, and it’s quite easy for TD Ameritrade. From the reviews I’ve read, Robin Hood has designed an excellent interface for mobile trading.

I haven’t used Robin Hood myself, so I can’t personally recommend it. But the feedback from 2+ million uses is very positive.

Stock Investing Through Index Funds and Mutual Funds

Brokerages and large mutual fund companies are other places to buy stocks for free. Companies like TD Ameritrade and others such as Fidelity, Vanguard, and American Funds will allow you to buy selected funds and ETFs for free. TD Ameritrade currently offers 100+ commission free ETFs to trade.

To buy or sell most stocks, you will still have to pay a trading fee as these are full-service. However, these companies provide no-fee trades for ETFs and certain mutual funds.

Buying index funds or ETFs give you broad exposure to many stocks instead of individual stock. If you’re interested in creating your own mini-ETFs, Motif Investing is a unique and excellent choice. Create a basket of up to 30 stocks, and you can buy them all at once. However, Motif is not commission-free. You pay $9.99 to buy a motif of stocks or just $4.95 per regular stock trade.

Companies like Fidelity and Vanguard do not charge a fee if you buy their own mutual funds. Mutual funds come in all shapes and sizes, including stock, bond, domestic and international allocated funds. Some funds are managed, meaning there are managers making decisions about what investments are in the fund.

Index funds, on the other hand, are the cheapest way to invest in a large diverse group of stocks. If you purchase an index fund through the broker that manages the index fund, they will not charge you a fee. Vanguard was the first to advocate this type of investing back in the 70’s. Other companies like Fidelity have followed suit.

Since index funds track a known group of stocks, it costs very little to manage them. Therefore, index funds usually charge a minimal annual fee of just 0.20% or less. I know this article is about no-fee investing in stocks. But the diversification you get through an index fund is worth that tiny cost. Great investors such as Warren Buffet suggest index funds is the best investment type for the vast majority of investors.

By investing in index funds that are free to trade, and doing so in retirement accounts through a large broker offering these types of investments, you’ll participate in stock market gains over the long-term while minimizing the risks of owning individual stocks.

In my own retirement accounts at Fidelity and TD Ameritrade, I practice the strategy of index fund investing. It is a hands-free way to invest. I set my investments and forget them. Best of all, they are in tax-advantaged accounts meaning my investments can grow tax-free.

Join TD Ameritrade. Trade free for 60 days + Get up to $600.

Direct Stock Purchase Plans (DSPPs) and Dividend Reinvestment Plans (DRIPs)

I commonly refer to Direct Stock Purchase Plans (DSPPs) as DRIPs (Dividend Reinvestment Plans). DRIPs are a way to buy stock directly from the company using what’s called a Transfer Agent. Transfer Agents manage these plans for large companies who want to offer their employees an easy way to invest. Shares issued to shareholders are listed in their name, as opposed to street name, which is the term they use when you buy through a broker. I explain this in detail here.

DRIPs are widely popular. If there’s a particular company who’s stock you want to own, to find the DRIP you can start at their Investor Relations website. Most public companies have an Investor Relations site. They’ll direct you to the Transfer Agent that administers the program. Some of the bigger Transfer Agents include Computershare, Wells Fargo Shareowner Services, and Amstock. I personally own Chevron and Procter & Gamble through Computershare and have been very happy with the service they provide.

But not all DRIPs are created equal.

Many DRIPs charge a fee to buy stocks and reinvest dividends, and almost all charge a fee to sell. When I start to invest in a new DRIP, I only buy the ones that are free or charge a very small fee. Fortunately, the Transfer Agents make it easy to find the free DRIPs. Each plan clearly lists the fees involved, and sometimes you can actually filter out the ones that charge fees.

Computershare makes it very easy at this link. For others, it is important to read the prospectus to know exactly what they charge.

Minimum investments sometimes do apply to these plans. You may need a minimum of $250, $500 or more to open an account. And there’s another very important distinction. DSPPs are plans that you can access directly. Some DRIPs are DSPPs. HOWEVER, not all DRIPs are DSPPs. Let me explain.

If a company offers a DRIP that is not a DSPP, that means you need to own at least one share of stock to be able to participate. So you’d have to acquire a share in your name. To do this, you need to buy through a brokerage and have them transfer it out of street name and into your name. There’s a fee associated with this, so I don’t recommend that. Another cheaper way is to have a current shareowner give you a gift of one share.

A few services online can help facilitate a share transfer too. The biggest one I know of is First Share. Using that service, you can buy a share from someone directly which would automatically enroll you in the DRIP.

This whole transfer agent business has frustrated me for years. There have been stocks I wanted to DRIP into but didn’t want to pay extra to acquire the first share. Figuring out which ones do and don’t can be a pain. Then making sure you know all the fees associate with it is important too. Again, some don’t charge fees at all. That is why I’m telling you about them here. It is another option.

Coca-Cola, for example, has a DRIP through Computershare. I’ve participated for nearly 20 years. But they charge fees to buy, sell, and reinvest the dividends.

Disney is another stock available through a Transfer Agent with fees. Read all about the Disney DRIP here.

If you are looking to invest in one particular stock, the DSPP/DRIP may be a good place to start looking. Start at the investor relations page to see what is available. Then make sure you understand any fees. B

Conclusion

Before the internet revolution, buying stock through a broker was very expensive. The price of entry was enough to scare off most small-time investors.

The first time I wanted to buy a stock through a broker was intimidating. In 1996. I called a few up from the yellow pages and asked if they would be willing to help me buy $400 worth of stock in a company called Clearly Canadian. After a few calls, one of them said he would do it for me. The fee was $60. I was so certain this stock would be huge, that I made the purchase.

It turned out to be a terrible investment and I lost 75% of my money. The fee alone was robbery. But that’s the way it was before internet stock trading.

Nowadays, we have many options to keep our fees to a minimum, and a few that make buying stocks online easy and free. The best option for commission-free trading today is Robin Hood. If you are a beginner investor, I don’t know of a better place to put your money. The easy, modern feel of the website and mobile app is very comfortable.

If you have any questions about getting started investing or how to buy stocks for free through any of the services I’ve provided in this article, feel free to leave a question in the comments section below and I’ll be happy to provide more detail on my experiences. You can also subscribe to my blog. I write about investing, retirement and travel related topics on a weekly basis. I track my passive income sources on a monthly basis, sharing with my readers.

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10 Responses to How To Buy Stocks Commission-Free

  1. Anthony July 16, 2015 at 12:34 am #

    I don’t find the links to Twitter or to Facebook.

    • Retire Before Dad July 16, 2015 at 6:54 am #

      Should be both in the left column (desktop) and at the end of the post on mobile now. I hope it’s fixed now. Thanks for sharing.

  2. Guy August 19, 2015 at 8:57 pm #

    RBD,

    Have you had any difficulty with Loyal 3 so far with any buying or selling or anything in general? It truly sounds like a really solid way to dollar cost average into a nice variety of stocks. My only concerns would be

    1) Where is their physical establishment? I like having a Scottrade office 15 minutes away in case I needed to speak to someone in person. Doesn’t happen often, but it is nice.
    2) Lack of history
    3) Batch orders (but I do understand that this is necessary for their business model to work)

    Guy

    • Retire Before Dad August 19, 2015 at 10:10 pm #

      Guy,
      I have had only good experiences. Batch orders run at 2pm each day. So if I want to buy extra, I try to put in the order right before 2pm so I know where the price will be. Has worked well in addition to dollar cost averaging.

      Their offices are in SF. I don’t use my TDA or Fidelity local offices, so I doubt I’d use a Loyal3 one if nearby. As for history, they are licensed and legit. We own the individual stocks, so even if they went under our investments there would be safe. They’d just be transferred elsewhere. I’m very comfortable using the service and still highly recommend it.
      -RBD

  3. JTF October 14, 2015 at 9:13 am #

    Merrill Edge gives 100 free trades per month, so long as your portfolio is at least $100,000. Not a bad deal. Personally, I think DSPs and loyal3 are good enough, but Merrill Edge gives additional flexibility to buy any stock.

    • Retire Before Dad October 14, 2015 at 9:18 am #

      JTF,
      Thanks for that info. I was not aware of the 100 free trade thing. That is a good deal if you have the portfolio size.

      A lot of my readers are just getting started. Loyal3 is the best option for many new investors. Very easy and you can start with very small amounts. And more choices than one DSPP at a time.
      -RBD

  4. Garth October 21, 2015 at 9:38 pm #

    I was thinking about buying nike stock directly through compushare but was reading about your experience with loyal3. Which do you think is the better way to go?

    • Retire Before Dad October 21, 2015 at 9:46 pm #

      Garth,
      Thanks for commenting. Computershare is rather antiquated. Not only that, the fees are all over the place. I just looked up NKE and the fees are quite high. $2 or $5 to invest. Loyal3 is completely free. Pay no commissions to buy or sell. Definitely go with Loyal3. You’ll have access to 66 other companies too, and IPOs as well. I’ve been buying Nike myself at Loyal3 and I’ve been very happy with it.

      I should add I own stocks through Computershare and have a strong dislike for it. But those companies are not available on Loyal3 (PG, WTR, CVX). It’s just a bad interface and the fees are too high. Go with Loyal3 for sure. Thanks for stopping by!
      -RBD

  5. Sam Kim August 2, 2017 at 3:32 pm #

    Have you gone to foliofirst or stockpile? I did jus close my account at foliofirst since they are going to charge me with $5 per month starting August 2017. Wondering what alternatives of investing fractional shares with free of charges or minimum.

    • Retire Before Dad August 2, 2017 at 8:37 pm #

      I transferred my stuff to TD Ameritrade. Stockpile seems interesting. As does Robin Hood. But I don’t know if RH takes transfers.

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