Amazon has a feature that makes it easy for customers to quickly (and perhaps impulsively) buy products — a “buy now” button. And investors certainly have been keen to do the same, but with the company’s stock: Its share price nearly doubled in less than a year’s time between 2017 and 2018.
As one of the world’s largest retailers and publicly traded companies, Amazon has risen to the top of many investors’ buy lists. Looking to invest in this growing retail giant? You could become an Amazon shareowner in a matter of days (or less). But the stock is hardly a bargain — it surpassed $1,800 a share in July 2018 — and deciding whether Amazon deserves space in your portfolio depends upon your financial situation, current holdings and investment goals.
Here are three steps to figuring out whether Amazon is right for you and — if it is — making your purchase a reality.
1. Look at Amazon through an investor’s eye
There’s an understandable appeal to owning shares of a company you interact with regularly, but what you know about a company as a customer often doesn’t equal knowing it as an investor. When it comes to a stock like Amazon that’s seen tremendous gains in its price recently, that factor alone may entice (or turn off) some would-be investors.
Don’t base your to-buy-or-not-to-buy decision on a stock’s past performance or current price. Instead, rely on the all-important step of scrutinizing Amazon’s investment merits, including quantitative research (looking at elements such as revenue, net income and earnings) and qualitative research (competition, management and how the company makes money, for example).
Don’t base your to-buy-or-not-to-buy decision on a stock’s past performance or current price.
Real-time trading information and other common stock data terms (such as market capitalization, earnings per share or the price-to-earnings ratio) are available via online brokers or a variety of financial websites by searching for Amazon’s trading ticker: AMZN. Amazon’s trading price in the past year has ranged from $931 to $1,858, as of this writing, but if you don’t have this much to invest, see the information below on brokers that offer fractional shares (essentially pieces of a share).
» New to this? Consult our guide on how to research stocks
One important thing to note up front: Unless the purchase fits with the rest of your holdings, buying as much as you can afford of any single stock is not usually the best decision. Consider these three tips before buying any stock:
- Don’t invest money you’ll need in the next five years. If you ignore this, you run the risk of needing that money when the stock is down in value, which could lock in losses if you need to sell. Before buying individual stocks, make sure you have a rainy-day fund with enough money to cover three to six months’ of living expenses and any shorter-term goals you may have (buying a house, for example). The stock market is generally a strong long-term investment, but there are safer alternatives for short-term savings.
- Consider index funds in addition to individual stocks. Index funds, which track a market index made up of dozens (or hundreds) of companies, provide much-needed diversification and reduce your overall investment risk.
- Add to your holdings over time, rather than making one big purchase. Dollar-cost averaging, a strategy of adding to investments routinely over time, ensures you don’t pour all your money into the market when prices are high. That means it’s sensible to start small and grow your position gradually.
2. Open an investing account
Buying Amazon (or any other stock) generally requires you to have a brokerage account, and online brokers offer the quickest and easiest ways to start one today. If you don’t have a brokerage account, you can open one in about 15 minutes — the process is similar to signing up for a checking or savings account. See our tutorial on how to open a brokerage account for more details.
You can open a brokerage account in about 15 minutes.
Here’s where you’ll need to make an important decision: If you can afford to buy at least one share of Amazon (while keeping in mind the above considerations), opt for an online broker. Why? You’ll have access to a breadth of additional investment offerings to build out your portfolio over the years — mutual funds, exchange-traded funds, options and futures, for example.
If your heart is set on Amazon and you can’t afford to buy a full share at the current trading price, look at specialty services such as Motif Investing or Stash, which offer fractional shares, meaning you can buy a portion of one share of Amazon through the companies.
In general, look for a broker with low commissions, excellent customer service and useful tools and resources. We’ve narrowed down the field to make it easier, so check out NerdWallet’s roundup of the best brokers for stock trading.
3. Place your Amazon order
Once you have an account, it’s time to buy Amazon stock. A stock’s price is determined by what’s known as the bid-ask spread (the difference in price between what sellers are willing to accept and buyers are willing to pay). The bid-ask spread changes throughout each trading day, but you shouldn’t get too hung up on getting the lowest price to the penny — more on that below.
You shouldn’t get too hung up on getting the lowest price to the penny.
When you’re ready to buy the stock, you’ll need to choose among a variety of order types offered by your broker. But one of these two simple choices will get the job done: a market order or a limit order. The difference comes down to when your trade is executed (ASAP with a market order or only when the stock is trading at a price you specify with a limit order).
Here are some tips when deciding between these order types:
- A market order is best for: Buy-and hold investors. You may not get the exact price you see when placing your order since it’s executed at the best available market price. But these types of small differences won’t matter in the long run.
- A limit order is best for: Investors who want control over the price at which a trade is executed. This may be useful if the market is moving wildly, or if the price you pay is more important than executing your order (which is a risk of limit orders — they may not get executed in full or at all).
No matter how you go about buying Amazon shares, the process is not inherently different from buying any other stock. Consult our guide on how to buy stocks for additional details on making stock purchases.
Once you’ve reviewed (and placed) your order, welcome to prime time: You’re now an Amazon shareholder. Keep an eye on the stock to ensure it doesn’t begin to take too big a portion of your overall portfolio. See our guide to asset allocation for more on that topic.