While trading fees are very low today, investors are still giving away their hard earned investment money to whichever broker they use to buy stocks in the form of trading fees. At the same time, an investor would have to acquire enough capital that a trading fee would represent a very small portion of their total investment. Today many brokerages offering $4.95 trading fees.
If an investor wanted to make sure that their trading costs were under 0.5%, they would have to invest at least $1,000 at a time. But even if you can acquire this amount for a single purchase, why should investors be willing to pay extra to purchase a stock? As Vanguard states, markets are unpredictable, costs are forever.
Fortunately, there are alternatives to paying trading fees. Many companies have automatic investment plans. These programs are called Dividend Reinvestment Plans, or DRIPs. While some charge fees for purchases, there are a number of companies that will allow you to purchase shares of their stock for free. Almost every DRIP allows investors to purchase small amounts of stock at a time, often at minimums of $10, $25 or $50. Many of these plans even offer free dividend reinvestment, allowing your dividends to purchase even more shares for you.
In addition, buying in small monthly installments allows an investor to dollar cost average into a position. This helps prevent investors from purchasing stocks at an extreme overvaluation. And from humble beginnings come great things. Purchasing $50 of a stock every month that averages 8% growth per year could lead to a position worth nearly $75,000 in thirty years.
One such DRIP that investors should consider is 3M (MMM).
Company Background
Founded in 1902, 3M sells more than 60,000 products to customers in more than 200 countries around the world. 3M has a market cap of more than $118 billion and is one of the largest industrial companies in the world.
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