10 Questions to Ask Your Broker

Question #9 (when buying through a bank or Savings & Loan): Is this investment insured by the FDIC?

Stocks, bonds and mutual funds are not federally insured for market losses. The Securities Investors Protection Corporation (SIPC) insures investments only if a company goes out of business, and even then, you only get the current market value . But when stock or mutual funds are sold through a bank, investors are sometimes led to believe that these investments do fall under the FDIC guarantee.

Many bank customers think that whatever they buy at the bank is covered by the same FDIC insurance coverage. And unfortunately many mutual funds don't make an adequate effort to dissuade customers of this notion.

Question #10: What about Dividend Reinvestment Plans (DRIPS)? Wouldn't I save a lot of money buying stocks this way?

The correct answer is "Yes." Unfortunately, many brokers will never tell you about it. Some may even try to discourage you by saying you have to wait too long to actually buy the shares, or that you can't get them at the price you want. Reason: There are no commissions in it for them.

The truth is that DRIPS can be very profitable investments for many people. About 1,100 companies traded on U.S. stock exchanges have DRIPS. After you buy the initial share , you can then buy additional shares right through the company or its agent. This can save you a ton of money in commissions. Sometimes you are charged a small fee; other times the plan allows you to buy shares at no fee whatsoever. In either event, the savings are significant. You can even set up many of these plans for automatic transfer from your bank account. Your dividends are automatically reinvested.

There is a downside, though. You can't specify at what price you want to buy the shares because your money is pooled with that of other investors, and the company buys shares on a regular schedule. But if you're investing for the long term, you shouldn't be overly concerned about market timing .