Whether you’re brand-new to the stock market or simply thinking about reallocating your existing portfolio, investing in shares of an individual company can be tempting — especially if you’re talking about an ultrasuccessful business like Amazon. Who doesn’t want a piece of that multibillion-dollar pie?
However, the importance of diversifying your portfolio is well-trodden ground in the world of financial advice, and for good reason. You want to have your eggs in as many baskets as possible. If you stash all your cash in a single company’s shares and that company’s value plummets, your entire investment portfolio is sunk, whereas you have more margin for error if you invest in a wide variety of assets.
For beginning investors, investing in exchange-traded funds and mutual funds can help you achieve diversification with a small amount of effort and expense and therefore could be a safer option than banking on the success of a single company (even one like Amazon).
But if you do want to purchase Amazon shares — or shares of any specific company — here’s how to do it.
Research the company
No matter how successful the company you’re considering seems to be, it’s important to do your homework and make sure you know exactly what you’re getting into. While no one can predict the future, you can make educated guesses about how well a company will continue to fare based on certain publicly available figures and performance metrics.
For starters, you might want to look up:
- The company’s overall revenue and how it compares to revenue from previous years. Is it trending upward? Staying the same? Falling?
- The company’s management strategy and performance. Have there been recent shake-ups, or does the leadership seem reliable and competent?
- The company’s plans for the future. Is there a new product or business model in the works? Innovation can spur growth, but it also has a chance of failing.
For a large, publicly traded company like Amazon, these factors are easily searchable online. Amazon also has a special page for investors, which offers quarterly sales results as well as press releases, annual reports and shareholder letters.
Consult your portfolio
Once you have a handle on the structure, outlook and earnings of the company you’re looking to invest in, it’s time to take a second look at your own situation. How much do the shares cost, and how many can you afford to purchase? How much of your portfolio is dedicated to stocks (as opposed to bonds and other securities), and what’s the ideal proportion?
As of November 28, 2018, a single share of Amazon costs about $1,675. That’s a hefty chunk of change. If you can’t afford to purchase a share of Amazon outright, you can look into brokerages that allow you to purchase fractional shares. But if you can afford to buy one or more shares of Amazon stock, it’s important to consider your overall mix of investments and how much this purchase would shift the balance.
Investing in different types of assets is one of the best ways to protect yourself against market volatility, and while stocks can provide some of the best growth opportunity on the market, they also can come with more risk than bonds, government debts and other securities.
For many years, the rule of thumb was to invest in a percentage of stocks that was equal to 100 minus your age. For instance, if you were 40 years old, your ideal portfolio would consist of 60% stocks. However, a recent drop in returns from U.S. Treasury bonds (as well as an increased life expectancy) has shifted the balance. These days, many advisors suggest using a formula of 110 or even 120 minus your age.
Because Amazon’s stock is so expensive, purchasing just a few shares might add up to a large percentage of your overall asset allocation mix, so be sure to factor that possibility into your decision-making. And remember: No one rule or guideline will perfectly fit every investor. If you’re not sure what your ideal portfolio should look like, consider consulting with a licensed financial professional.
Log in to — or open — a brokerage account
In order to buy, sell and trade on the stock market, you need to have a brokerage account. There are different types of brokerage firms to choose from, from full-service operations that offer personalized help from financial advisors (such as Merrill Lynch and Morgan Stanley) to discounted DIY accounts that offer low fees but fewer services (including Vanguard and Fidelity). Brokerages also are split into margin and cash accounts. In the former, the brokerage lends you money to invest and treats your assets as collateral, whereas in the latter, you pay full price for each security you own.
The brokerage you choose will depend on your personal investment strategy and how much you’re willing to spend in exchange for extras like professional guidance. Low fees are attractive, of course, but it’s imperative that you research your broker’s background, according to the Financial Industry Regulatory Authority. In particular, look for any history of licensing issues, bankruptcies or disciplinary actions.
Once you choose a brokerage, you’ll be asked to provide some personal information, such as your Social Security number, income, employment status and more. The individual firm you decide to work with can give you full details about how you’ll be able to access and utilize your account once it’s opened.
Place your order
You’ve got your brokerage account up and running, you’re feeling confident about your decision, and you’re ready to put down the money. Now’s the big moment: It’s time to place your order.
Whether from an online interface or over the phone with a live broker, there are several types of stock orders you can place as an investor. Two commonly used orders are:
- Market orders buy or sell a stock or other security immediately at whatever the current value of the share may be. That means you may not know exactly what you’ll spend on the share until the order is complete, as the value changes minute to minute.
- Limit orders impose a “limit” on the amount you’ll spend on a stock. For instance, you might place a limit order on a single share of Amazon at $1,500, in which case the order will go through only if the value of the stock drops to that price or lower.
After you decide which type of order to make, place one for however many shares of Amazon (AMZN) you want. Once it goes through, congratulations! You own a piece of one of the most famous companies in America.
Monitor your investment
For all but the most advanced investors, playing the stock market is a long game. You usually stand to earn the most money by allowing the magic of compound interest to accrue over years rather than sweating the day-to-day price fluctuations securities are prone to.
However, because stocks are more volatile than other types of assets and because even very successful companies occasionally go under, it’s important to monitor your investments over time. After all, every investment does come with some risk.
With a large company like Amazon, you can keep tabs on company-related news, easily review quarterly reports and make reallocation decisions based on the firm’s performance over time. For press reviews, earnings reports and more important investor information, check out Amazon’s “Investor Relations” portal.
Although all investments carry risk, wise stock market buys can be one of the most efficient ways to put your money to work for you. The power of compound interest is one of the easiest way to set yourself up for success down the line. Just be sure to seek out professional investing help if you need it — because when it comes to the market, nothing is guaranteed.