Choosing How to Hold Your Online Investments
The biggest factor that influences how your online investments will make their way to Wall Street depends on how you hold your shares. Street name ownership is the most common with most online brokers.
Street name ownership is so common that unless you tell your online broker to do otherwise, your broker will assume that you want your shares owned in street name. Holding paper stock certificates is the old-school way of owning stocks. Direct registration is when the company that issues the stock holds your stock for you but lists you, not your broker, as the owner.
Street name ownership for stock investments
If you’re not sure how to hold your shares, street name ownership is probably your best bet. For most investors, the advantages of this form of ownership outweigh the few negatives:
Easy handling of dividends: Dividends paid by companies you own stock in are sent directly to your online broker, which then deposits them to your account.
Central source of company documents: If you’re like most online investors, you probably own shares of several companies. When you own the stock in street name, all the paper correspondence sent out by the companies first goes to your broker. The broker then forwards it to you.
Security: It’s up to the brokerage to safeguard your stock.
Easy to sell: If your online broker has your shares on hand, you can sell them anytime you want without having to mail in a paper certificate first.
Street name ownership does come with a few disadvantages:
Potential delays in dividend payments: Some brokers are quicker about crediting dividends to your account than others.
Hassle if your broker fails: Getting stock certificates transferred back to your name might be harder if your brokerage becomes insolvent.
Paper certificate stock ownership
The advantages to paper certificate ownership include the following:
Cutting out the middleman: Company materials come straight to you. This can reduce the time it takes to get some documents.
Using certificates as loan collateral: When you have the actual certificates, you might have a little easier time using the stock value to secure a loan.
Having actual certificates makes it easier to give them as gifts or for display: A paper certificate can be framed and given to young investors as a present. There’s something nice about having an item to wrap.
Being in control: With the certificates in your possession, you know where they are and can decide who can have them.
The following disadvantages to paper certificate ownership far outweigh the advantages:
Difficulty in selling: Paper certificates must be mailed to your broker or to the company or a firm it hires to handle such matters so the stock can be sold. Some online brokers may charge extra to process paper certificates.
Burden of keeping your contact information current with the company: It’s up to you to make sure that the company has your current address.
Responsibility for safekeeping the certificates: You’ll probably have to spend money to get a safe deposit box. And when you send them through the mail, you will need to insure them in case they get lost.
For more details on what to do if you lose a stock certificate, the Securities and Exchange Commission maintains advice about lost certificates.
Direct registration of your stocks
You get several advantages from having directly registering your stocks:
Company correspondence comes straight to you.
You can sell shares without mailing certificates to your broker.
You don’t have to worry about keeping the certificates safe.
Direct registration has two main downsides:
Inability to sell shares immediately: You may instruct the company to sell the shares, but your request is generally put into a pool and executed later in the day, week, or month. You may also sell your shares by instructing the company’s transfer agent to electronically send the stock to your online broker. The transfer process can take a few days, so the price might change by the time you’re able to sell the stock.
Pool of stock choices is somewhat reduced: Most companies offer direct registration, but not all. Many of the stocks you want to buy might not offer direct registration.