Pros of DSPPs
The benefits of DSPP investing include convenience, a dollar-cost-averaging investing style, and easy budgeting.
Convenience: DSPPs support automated investing. That's handy for those who don't want to participate actively in each trade. It also takes the emotion out of investing, making it easier to stick to your program.
Dollar-cost averaging: Dollar-cost averaging (DCA) is the practice of investing a set amount regularly, such as once monthly. An automated and recurring DSPP investment is DCA in action. These repeated, periodic trades reduce the risk of buying at exactly the wrong time. DCA can also keep your average cost lower when stock prices are rising. And a lower average cost means higher gains.
Easy budgeting: Budgeting a set dollar amount for investing is straightforward. Budgeting to buy a set number of shares at an unknown future price is more complicated.
Cons of DSPPs
The drawbacks of DSPPs are that it's more difficult to diversify in a DSPP, and the shares may be less liquid than positions in your brokerage account.
No diversification: A DSPP gives you access to only one company's stock. However, some transfer agents handle multiple programs. So, you may be able to use one account to join various DSPPs. In that scenario, you would still establish separate recurring investments for each program.
Potentially lesser liquidity: Each plan defines the rules for selling and withdrawing shares. Depending on the plan's rules and the type of account you have, you may be unable to sell shares without transferring them first. If your plan allows you to liquidate, you may not have control over when the transaction is made and at what price.
