For stock market investors, the meteoric rise of Amazon stock is impossible to ignore. Amazon made its stock market debut in 1997, where its initial public offering (IPO) was $18 per share. The financial experts at CNBC did the math: If you had purchased $1,000 worth of Amazon stock in 1997, your investment would grow to over $1.3 million by 2017.
Today, Amazon (stock symbol: AMZN) is performing at just over $3,200 per share. The company’s dramatic rise in value might make it seem like a wise investment opportunity. But is Amazon a good stock to buy?
In this post, we’ll help you understand how to invest in Amazon stock and to evaluate the risks and rewards of investing in Amazon stocks.
Why Should I Buy Amazon Stock?
Is Amazon a good stock to buy? What should you consider before sinking your money into a stock like Amazon?
Managing Your Financial FOMO
The staggering success of companies like Amazon can leave investors with a mild case of FOMO—the “fear of missing out.” After all, if we had $1,000 and a time machine, we could retire by making investments in the would-be tech giant. Today, investing in AMZN might seem like it’s better late than never.
But remember a simple rule of investing: You only make money if your investment grows. In other words, investing in Amazon offers no guarantee of the kind of rapid success that we’ve seen in the past.
That doesn’t mean AMZN isn’t a wise investment—only that it may not offer the same level of rapid growth that you’ve seen in the past.
Understanding Amazon’s Current Performance
Currently, AMZN is not performing as well as it has before. Investor’s Business Daily gives AMZN a relative score of 35, which means that the stock has performed relatively weakly over the past 52 weeks.
This isn’t entirely unexpected. While we’ve written about Jeff Bezo’s success in the past, this success has been based on innovation. While Amazon was once a novelty, online shopping has now become the norm.
Amazon’s streaming service likewise is simply one voice in a sea of competitors, like Netflix, Hulu, and Apple TV. While their Kindle devices have certainly cornered the market in e-readers, we’re simply not seeing the kind of growth we once saw.
On the one hand, that could mean that now is a good time to invest in the company, but only if there’s reason to expect an increase in stock performance in the immediate future. There’s no crystal ball for things like this — but the recent development of Amazon Pharmacy just might give the company a boost.
Amazon Stock Could Rise with Amazon Pharmacy
Amazon could regain its competitive edge with the advent of Amazon Pharmacy. This service will allow individuals to use Amazon’s website (or app) to search for medications and compare prices to find the most cost-effective option.
Prime members will be able to enjoy two-day delivery, as well as discounts on both generic and branded medications when they aren’t paying with insurance. These discounts won’t require an additional subscription. They’ll be offered to Prime members as a part of their standard membership in 48 U.S. states.
This could easily destabilize the pharmaceutical industry and give AMZN stock a much-needed boost. If you’re thinking about investing in AMZN at any point in the near future, this may be a great time to do it.
Should I Buy Amazon Stock for My Current Portfolio?
Of course, you’ll need to consider how AMZN stock fits in with your broader investment strategy. Here are some other things to consider before investing in Amazon stocks.
Maintaining a Diverse Portfolio
Investing in an individual stock carries considerable risk, especially given the ups and downs of the stock market. Most investors pursue a diverse portfolio to mitigate against this risk.
Younger investors can generally afford to aggressively invest in certain stocks, but only because they’ll have a lifetime to correct for any underperforming investments they make. But most financial advisors would recommend that you maintain a balanced, diverse portfolio to shield against major downturns.
Don’t Put All Your Eggs in One Basket
Diversifying your portfolio isn’t just about managing risk. It’s also about ensuring that your money isn’t tied up in one stock — preventing you from making an investment in another rising company.
Leave yourself margin so that you can take advantage of investment opportunities that present themselves in the future.
No Dividends
Investors should also be aware that AMZN does not pay dividends to its shareholders. This means that investors should rely exclusively on an increase in AMZN stock prices in order to generate a return on their investment.
When to Buy Amazon Stock
While we all wish we’d gotten in on the ground floor, it doesn’t mean that there’s a bad time to buy Amazon stock. But when is the best time to buy Amazon stock? There are two things you may wish to consider:
Amazon Stock is at an Inflection Point
Amazon could be sitting at an inflection point. Its current lackluster performance could easily do an about-face with the advent of Amazon Pharmacy. If you’re looking to invest in AMZN stock, it might be a good time to do it.
Dollar-Cost Averaging
You may also want to consider a different investment strategy altogether. Rather than wringing your hands to discover the “best” time to invest, make a series of smaller, regular investments over a period of months or years.
This method is known as “dollar-cost averaging,” and it can protect you from sinking all of your money in a single, one-time investment. This can help you to take full advantage of the dips and valleys in a company’s stock performance, investing during low periods and reaping the rewards during their high periods.
How to Buy Stock in Amazon
One of the hardest decisions for any investor to make is to determine how much to invest in a single stock. Invest too much, and you risk a greater loss on an underperforming investment. Invest too little, and you may miss out on great future gains.
There are several ways you can purchase Amazon stock, based on your level of commitment and risk.
Fractionally
You may be wondering how to buy Amazon stock when each individual share costs over $3,000. Fortunately, many brokerages will allow you to purchase fractions of shares. Instead of making a high-dollar investment to purchase a full share, you can purchase fractions of shares. This approach may be ideal for investors who want to invest in larger, high-value companies like Amazon, but find that stock prices would otherwise be prohibitive.
Market Order
A more direct way to purchase AMZN stock is through a market order. With a market order, you determine your desired number of shares, then pay the current market price.
For instance, if you wanted to purchase 5 shares of AMZN stock at the current price of $3,000 per share, you would spend $15,000 total, plus any commission fees to your broker.
This is an aggressive strategy, but some investors adopt this approach in the hope of realizing greater financial gains. The flipside, as you can imagine, is that you also accept greater risk.
Limit Order
A limit order works very similarly to a market order, though in a limit order, you set your upper limit for the price of your investment. For instance, you agree to buy 5 shares of AMZN stock when the price is $2,000 per share. That way, you limit your investment to a maximum of $10,000. If the stock never performs at $2,000, your order is never completed.
This method can be ideal for those who want to invest in a company like Amazon without overcommitting their assets.
Mutual Fund
The absolute safest way to purchase Amazon stock is through a mutual fund. This is also a great way to achieve a balanced, diverse portfolio. Some mutual fund companies even specialize in the tech sector, which can potentially enable you to make even larger investments in companies like Amazon
Younger investors can also use AMZN stock as part of an aggressive investment strategy, provided they have sufficient time to make adjustments based on future market performance.
Dollar-Cost Averaging and Buying Methods
Earlier, we mentioned that you can invest in Amazon stock over a longer period of time in a strategy known as dollar-cost averaging. This method can be combined with any of the buying methods above, though it perhaps lends itself best to the purchase of fractional shares.
How to Buy Stock in Amazon: Online vs. Broker
Once you’ve decided to make an investment in Amazon, where do you purchase Amazon stock? You have three broad options:
How to Buy Amazon Stock Through a Broker
The traditional way to purchase stock is through a brokerage firm. A personal advisor can show you how to buy Amazon stock, but they can also serve as an advisor for the overall investment process. There are some fees associated with this method, but the personal touch may be worth it—especially for new investors.
How to Buy Amazon Stock Online
Apps are increasingly dominating the investment landscape. Online brokerage apps make it easy to make investments right from your phone or tablet.
Some companies offer access to a broker to help manage your portfolio. As before, there are fees associated with this kind of service, but it can be a useful way to ease your way into the market.
How to Buy Amazon Stock Directly
Amazon also allows investors to purchase stock directly through their Direct Stock Purchase Plan (DSSP). Investors can create an account and purchase stock directly from the company, which can save fees that you may otherwise pay to an online broker.
Quick Guide to Buying Amazon Stock
Think you’re ready to invest in AMZN? Great! Let’s review what we’ve learned by putting it all together in a handy checklist:
1. Do Your Initial Research
Amazon may be at an inflection point. But you may also want to do some research on your own to determine the overall value of AMZN stock. A number of websites are available to help you evaluate individual stocks. At Gorilla Trades, our site can provide advanced analytics and other research tools to help you maximize your investment.
2. Choose an Investment Amount
The amount you invest in any stock is an important decision, and it’s largely a personal one. While brokers may offer insight and advice, your final decision must be right for you and your family.
3. Determine Your Method of Purchase
Your investment amount may govern your method of purchase. Long-term investors may also want to consider how an investment in AMZN can fit into their existing stock portfolio.
If you’re thinking about long-term investing or using the dollar-cost averaging method, you may also want to think through how you’ll make future stock purchases in Amazon.
You will also need to decide whether to purchase from a brokerage firm, an online platform, or directly from Amazon. Newer investors may want to go the “safe” route and have their portfolio managed a bit more directly. This can help you make the most of your new financial venture.
4. Make Your Purchase
Now that you’ve determined your investment amount and method for buying Amazon stock, it’s time to make your purchase.
5. Determine your Method of Review
Once you make your investment, you’ll want to keep tabs on how it’s doing. Some websites like Google Finance offer simple data on stock performance, but investors may want greater access to up-to-the-minute market results.
At Gorilla Trades, our members have access to email newsletters, text alerts, and detailed tools to keep tabs on all their investments.
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