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An alternative method for stock purchase (USA)

Discussion in 'Money Matters' started by tashidelek2002, Jun 8, 2010.

  1. tashidelek2002

    tashidelek2002 IL Hall of Fame

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    As you may know, purchase of stocks is often done through a stock broker or from an online account. I recently came to know that there is another method and this is to purchase the stock from a stock transfer company. Each publicly held company will set up the parameters for the sale of their stock with a specific transfer company (if they allow sale in this manner) and so one needs to research each stock and see what the costs involved for buying and selling both from a broker and from the stock transfer company. These can vary widely and some stocks can be bought, sold, and held for NO charges at all through stock transfer companies. This can be a significant savings for the investor. This can also be a vehicle to hold stocks long term with out yearly account charges although the stock transfer company may stipulate that the dividends must be reinvested in shares. The stocks available can be USA companies but it can also be foreign stocks. Example: I saw ICICI and Infosys for sale on American Stock Transfer. One drawback of this type of account is that at the time of sale, the lag time for the sale can be 2-10 (at least that is what American Stock Transfer cites) so if the sale is time sensitive this is not optimal. A strategy to get around this is to have an online account and transfer the stocks (takes one day) and then sell from there. In less volatile markets this may not be necessary but for the current market I think this is important. The stock transfer will send statements for the account (perhaps quarterly) but will have exact records for all sales so computation of basis is easy.

    Note: I am not a stock broker or finance professional....please consult a professional and do research on this matter before proceeding.
     
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  2. Priya_Mommy

    Priya_Mommy Gold IL'ite

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    Thats a good information Tashi.
     
  3. sarma

    sarma Senior IL'ite

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  4. tashidelek2002

    tashidelek2002 IL Hall of Fame

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    sarma:
    I think you are right about the DRIP plan...thank you for the link. In my case I ended up with one from inherited stock. If you can add any knowledge to this thread about this, please do.
     
  5. sarma

    sarma Senior IL'ite

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    Brokerage commission rates have come down significantly. In early 90s a trade could cost in ~100 per trade depending on size but lately the brokerage commisisons have come down into ~10 per trade range. So the buy/sell brokerage fees now are very low. Also many brokerages do dividend reinvestment free. Another advantage is that many brokers help in keeping track of the average share price for easier tracking of capital gains come tax time. All these have mitigated the need to work with companies directly.

    If you are looking for a cheap brokerage you may want to consider:
    http://www.sharebuilder.com/
    http://www.tradeking.com/


    You can inquire with them about free dividend reinvestment programs and buying fractional shares so your dividend money is fully invested on/about the date of dividend payout.

    Disclaimer: I have no experience with sharebuilder/tradeking as a brokers. I am just aware of them as a low cost brokers. Please do your own research.
     
    Last edited: Jun 16, 2010

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