Q: I’m very interested in playing the stock market through payroll deduction. How can I get started?
–V. Dory, Columbia, Maryland
A: First, decide which stocks you want to buy. Let’s say you’ve done extensive research and have narrowed down your choices. You can participate in direct stock purchase plans (DSPPs), or dividend reinvestment plans (DRIPs). These are programs that allow investors to purchase stocks directly, without going through a broker.
For example, companies such as AT&T (NYSE: T) and Wendy’s International (NYSE: WEN), just to name two, offer DSPPs and DRIPs to investors. To get your feet wet, invest in one stock you really like and decide how much per month you can afford to plunk down into a DSPP.
Then, contact your employer or bank to find out if they have the capability to set up a regular payroll deduction. If you’re paid bimonthly, for example, you can set aside as little as $25 per paycheck, a process called dollar cost averaging. That adds up to $650 a year.
Also, determine whether you’re really “playing” the market, that is, buying stocks to achieve a short-term goal like an expensive honeymoon. If you’re working toward a long-term goal, like retirement, that will determine your investment choices. Blue-chip conservative stocks work best in that case.
You can even join a DSPP or DRIP through the Internet. Log on to our site at blackenterprise.com and click on the direct stock investor link, “Buy Stocks Without High Fees,” to access a clearinghouse for such programs (see “Direct Investing,” Moneywise, August 1999). -I.C.
Mail your finance questions to Ask B.E., black enterprise, 130 Fifth Ave., New York, NY 10011, or send an e-mail to firstname.lastname@example.org.