One of the simplest, most effective, and most popular methods of buying stock is to start a Monthly Investment Plan, or MIP. Started in 1954, the MIP now has more than 93,000 accounts in force, and new ones are being written at the rate of about 180 a day.
Another 111,734 MIPs begun in the same period have been completed or terminated. Altogether, MIP investors have bought some 3,674,000 shares of various stocks, with a market value at time of purchase of over $154 million.
The Plan operates on the brilliantly simple basis of reversing the conventional buying procedure. Instead of having the price of the stock desired determine the amount of money that must be invested, MIP permits the amount of money available for investment to determine the amount of stock bought. This is a feature highly attractive to new or inexperienced investors, without large sums at their disposal.
Since the MIP encourages regular, periodic investment, it also permits the application of dollar cost averaging, one of the more successful formulas for acquiring stock.
Step by step, here is how it works. The would-be investor, first of all, may go to a New York Stock Exchange member broker, any of whom may service an MIP account. He tells the broker which stock he would like and how much, on a monthly or quarterly basis, he expects to invest. He may stocks listed on the Exchange, but no securities handled over the counter, or exclusively on other exchanges.
The broker notes this information on a form, together with the name (or names) in which the stock is to be registered, and upon receipt of a first payment, the MIP is in motion.
The form, let it be said, is not a contract, but a routine purchase order. It does not obligate the investor to a series select any of the more than 1,500 common and preferred of installment payments; it is simply a record of his intention to invest a certain amount at regular intervals, if possible. Its small print merely specifies the normal conditions under which securities are bought and sold, which apply to any stock-exchange transaction. No fees, charges, or interest payments are involved. MIP investors pay only the usual brokerage fees, which, for the sake of convenience, are deducted from his payments.
Permissible payments range from as little as $40 every three months to a maximum of $1,000 a month. The usual rate is $40 a month.
Over the years, General Motors has emerged as the favorite MIP stock. It is being bought by some 4,500 MIP investors.
If you should happen to want it, too, what would your monthly $40 buy? As this was being written, GM sold at 48V4. With a commission of approximately six percent deducted, you have $37.74 for investment. This will buy .7781 percent, or about 3/4 of a share.
Right here is the unique element of MIP. It is possible in ordinary stock-exchange dealings to buy an odd lot of as little as one share. It is possible to spend no more than $40 and acquire 10 shares of a stock selling at three. But in no way except through the MIP can an investor buy fractional shares and accumulate stock costing more per share than he has to invest.
The prime benefit to the investor is that it brings the entire range of big board stocks within reach.