How Small Investors Can Buy Stocks Without a Broker

Thanks to discount brokers and low-cost online trades, it has become more inexpensive than ever before to participate in the stock market. And small investors can even buy stocks without dealing with a broker--and put the money they save to work. Here are a few choices.

* Mutual funds: These are pools of money that invest in a number of different stocks, bonds, or a combination of both. A fund can own hundreds or thousands of different stocks, and there are more mutual funds than there are stocks on the New York Stock Exchange.

Some funds have initial investments as high as $3,000 or more, but if you sign up for a periodic investment plan you agree to invest a certain amount per month, withdrawn directly from your bank account. Depending on the fund, the amount can be as low as $25. Investing regularly also means that since you're buying shares regularly, your purchase price is different every time, which evens out the ups and downs in the price. So you'll buy more shares when the fund's price is low, and fewer with the price is high.

* Direct stock purchase plans/direct investment plans: With these options you buy stock directly from the issuing company itself, and the dividends are automatically reinvested into additional shares of the company's stock (or fractions thereof). Hundreds of companies offer such programs, and most of them are big, stable blue-chip corporations, including IBM, Coca-Cola, Pfizer, and AT&T.

With many dividend reinvestment plans (DRIPS) you need to own at least one share of stock already before you can participate; this you must do through a broker. Dividends are automatically invested into the stock, so you are buying additional shares every time the stock pays a divided.

Direct stock purchase plans (DSPs) also let you buy stock directly and have the dividends reinvested, but often you can start buying shares directly from the company, without purchasing any shares through a broker first.