Amazon (AMZN) is a large online eCommerce company that is currently one of the largest companies in the world. The founder, Jeff Bezos, started selling books out of his garage and took the company public in 1997 under the Nasdaq ticker: AMZN.
Why invest in Amazon stock? Well, Amazon has done a remarkable job at returning long term value to its shareholders.
If you had invested $10,000 in the 1997 IPO, your investment would have grown to over $9 million dollars.
But investing isn’t as easy as snapping your fingers and buying a stock. We’ll show you how to buy Amazon stock and make money with your investment.
Step 1 – Do Research
Before you buy shares in Amazon, you should figure out how much the company is relatively worth and whether sales and earnings are doing well.
Yahoo! Finance is a great place to conduct research on any publicly traded stock. You want to research annual sales, earnings per share, and other key statistics before making a purchase.
Amazon has increased revenue from $107 billion in FY 2017 to $232 billion in FY 2018. Earnings have continued to grow and the company is always focusing on customer needs and prioritizing long term shareholder value.
In the long term, all of these signs make Amazon stock a good long term investment.
Step 2 – Decide How Much Money to Invest
Amazon stock is currently trading between $1,300 and $2,000 in 2019 so you’ll need a good chunk of money to buy at least 1 share. Some brokerages offer fractional shares so you can invest a little bit of money to buy more shares over time.
Before you invest, it’s a good idea to think about how much money you can afford to invest.
When you buy Amazon stock, you own a small portion of the entire company
Remember that buying stocks is like buying a small part of a real life business. Thus, the best overall strategy is to treat stocks as a long term investment.
Portfolio Allocation and Risk Management
It’s a good idea to never investment more than 10 to 20% of your overall portfolio in one single company. This protects you against massive losses if the stock loses value.
Portion of Your Income
Investing at least 15% of your income is enough to get you started on the right track. As you pay down your debts and free up more money, you can increase the amount of money you invest.
Step 3 – Open a Brokerage Account
Buying Amazon shares is extremely easy if you open a stock brokerage account. There are two different types of brokerage accounts: discount online brokers and full service brokers.
The cheapest option is to open a discount brokerage account because they charge lower trade commissions, lower overall fees and make things easier for the average investor.
If you need more hands on services and investment insight, then try opening a full service brokerage account.
I’ve tried and reviewed many brokerage accounts over the years and here are my favorites:
- Ally Invest: Best online discount broker with $4.95 stock trades and zero minimums
- Fidelity: Best full-service broker with $4.95 stock trades and zero minimums
- Vanguard: Good for retirement accounts with $7 stock trades and low minimums
Step 4 – Place Your Trade
Once your account is setup, it’s time to purchase some shares of Amazon. When you enter the ticker into your account, you will see two numbers: the bid and the ask.
It’s a gap between the highest and lowest price buyers and sellers are willing to pay. It’s a good strategy to buy on dips, meaning buying the stock near the lowest bid or the day’s lowest price.
When making your trade, you will be asked to enter the following:
- Number of Shares: Total number of shares you are buying
- Order Type: Market or Limit Order
- Execution Time: GTD (Good until Cancelled) or For today only
A market order is when your order will be filled immediately regardless of price. This is best for long term investors but is dangerous when a stock is soaring quickly in value. You can sometimes buy at the peak then watch the stock fall in price shortly after.
A limit order is when you set a maximum price you are willing to pay for a stock. This is a much better strategy and lets you prevent overpaying on a stock. If the stock doesn't reach your limit, then the order never executes.
Submit your order and now your order will be filled by your broker. Be sure to refresh your account until the order status has changed to filled.
Once you’re order has been filled, you are officially an Amazon shareholder!
Step 5 – Determine Your Exit Strategy
Exit strategy is an important investing strategy to maximize your gains while protecting yourself from massive losses.
Once you own Amazon stock, you should decide when you will sell your shares depending on the outcome of Amazon.
If you are a long term investor, then you can buy and hold forever to keep collecting the dividend if your time horizon is 5+ years.
However, sometimes you buy the stock at its price peak and you end up losing a lot of money as the price continues to fall.
A good strategy is to sell off your stock if you have lost more than 20% on a trade. This will help minimize losses, plus you can always buy the stock back at a cheaper price.
If I buy a stock and it continues to drop in price, I normally exit the position to protect my overall account.