Do You Need A Stockbroker To Get Involved In The Stock Market?

In 2023, major stock market indexes like the S&P 500 and Dow Jones Industrial Average closed the year near all-time highs, climbing an eye-popping 24.2% and 13.7%, respectively. While those gains aren't typical every year, getting involved in the stock market is nonetheless a time-tested method for building wealth. However, buying shares of stock, either directly or as part of a variety of assets in a mutual fund, can be intimidating. For this reason, the first thing you might wonder is if it's necessary to have a living, breathing, human stockbroker to place stock trades (buying and selling shares) on your behalf. The answer to that question is a definite "no."

Ever since the mainstream adoption of the internet some 25 years ago spawned online brokerages, like E*TRADE, investors have been able to buy and sell shares of stock and other investments with just a mouse click or a tap on their smartphones. Better still, many modern online brokerages don't charge any fees whatsoever for simple stock or mutual fund trades. Therefore, all you really need to jump-start your stock market investing future is some money and an internet connection. That said, stockbrokers can prove a vital source of good advice for new investors, but be aware that those tips won't be dispensed for free. When getting involved in the stock market, going it alone or consulting with a professional broker both have pros and cons that should be examined to determine which is right for your investment strategy and personality.

The case for using a stockbroker

Just because you don't need a professional stockbroker's assistance to buy and sell stocks doesn't mean you should automatically rule out working with one. That's because an expert may be able to generate better returns on your money than you're capable of by yourself. They can also help you avoid costly mistakes, which could easily offset the modest fees brokers charge.

Stockbrokers (some of whom may also be financial advisers) typically have years of experience, training, and continuing education under their belt. They'll use that knowledge to help advise you on what to buy, when to buy, and when to sell. Also, rather than a "one size fits all" approach, skilled brokers will work to build a relationship and gather information from clients to establish a more personalized investment plan based on individual goals and budgets.

However, most stockbrokers work by earning a commission (a brokerage fee), which means they take a set fee or percentage from all buy, sell, or trade transactions. For some investors, a broker's sage advice is well worth the extra expense; other investors have performed well for themselves by poring over charts and doing their own research. Certain intellectually curious types may even enjoy learning how to invest effectively, while other busy folk will appreciate having a third party make trading recommendations.

Many online brokerages offer free stock trading

If you do decide to go it alone, the first step is to establish an online brokerage account. Money Analysis has previously discussed some of the best trading platforms for beginners, but to recap, a few popular and recommended names are Fidelity Investments, Robinhood, and Charles Schwab — all of which offer $0 fees for simple stock and ETF trades, have no minimum account balance required, and offer mobile apps to complement (or replace) desktop or laptop platforms.

After opening a new brokerage account, you'll need to add some funds. This can be a one-time occurrence, like mailing a check, or you can link your checking/savings account to make electronic transfers on a regular basis or whenever you feel like it. Once you're ready to start trading, online brokerages won't leave you totally to your own devices, unless that's what you want. While not as full-service as working with a human stockbroker, online brokerages won't keep you totally in the dark. Most have many resources for newbie investors, ranging from learning the fundamentals of buying/selling stocks to recommending goal-based strategies like income, growth, or retirement.

Direct stock purchase plans are also an option

Besides purchasing stocks from your own DIY trading account, there's also a lesser-known way to get involved in the market without a stockbroker. It's called a direct stock purchase plan, or DSPP, which enables investors to purchase shares of a company's stock directly from that company itself. These somewhat unusual transactions are completed by what's called a transfer agent, so no broker — online or otherwise — is required. DSPPs are offered by publicly traded companies, though not all companies that are publicly traded offer the purchase plans. 

Besides requiring little or no fees to purchase company stock directly, some companies also offer a discount of 1% to 10% on the share price, though not all do. Finally, certain DSPPs facilitate making purchases regularly, which can function as an automated investing strategy. On the downside, direct stock purchase plans typically have a higher threshold for making an initial investment than a regular brokerage account — often $250, $500, or more. Besides that, a separate account is required for each company you're investing in and users report such accounts aren't as rapid and liquid as transactions conducted from a traditional online brokerage.

An accessory to the DSPP is the dividend reinvestment plan, or DRiP, which as the name implies, reinvests any dividends earned from the stock into buying additional shares of said stock, sometimes including partial shares. If you're enamored with a particular company and want to continue to invest, DRiPs offer a unique broker-free arrangement that's attention-free; however, do be aware that the dividends are still taxed like income, even though the cash is immediately reinvested.