Question

What are the advantages and disadvantage of investing through an investment company versus buying securities directly?

Answer 1

Investors have an option of buying securities directly vs buying securities with the help of a investment company acting as the broker.

Investors have an option of buying securities directly through a DIRECT STOCK PURCHASE PLANS. When investors purchase directly form companies the DSSP fees are lower in comparison to the broker fees. Sometimes, the companies doesn't even charge a fee.

In a DSSP plan, investors have an option to choose from 1200 stocks that have the DSSP program, but through a broker an investors can get access to tens of thousand of stocks.

Investors need to be patient and wait for the dividend returns to come in a DSSP program.This program required a disciplined approach. A DSSP program is apt for small investors who do not have a large amount of cash available. It is affordable and saves a lot of money of the investors in comparison to investing through a broker. There is lack of flexibility in investing directly.

The stocks purchased from a broker provide convenience. With a broker the paper work becomes consolidated whereas with direct investment individual tax documents have to be prepared for each company in which they are invested.

Investing directly with a company , the investor will lose the research reports provided by the brokers which makes investing easily based on their recommendations and helps investors avoid losses. A brokerage account helps us to get access to a risk reduced diversified portfolio. Whereas holding more than one stock through the direct route, become cumbersome as we have to open an account with every individual company if we have to own their stocks which might not be practical if the investors wants to hold a number of stocks .