Invest In Amazon: A Guide To Using Mutual Funds

Amazon is a multinational technology company that has expanded from an online bookshop to a wide range of services, including cloud computing, satellite internet, and autonomous vehicles. The company's share price has increased by more than 50% over the last five years, making it an attractive investment opportunity. One way to invest in Amazon is through funds, such as mutual funds or exchange-traded funds (ETFs). These funds allow investors to buy shares of Amazon indirectly and provide the benefit of diversification by investing in multiple companies at once. Some popular mutual funds that have Amazon as a top holding include The Vanguard Total Stock Market Index Fund (VTI), The Vanguard 500 Index INV (VOO), and The SPDR S&P 500 ETF (SPY). ETFs that include Amazon shares in their holdings are ProShares Online Retail ETF, Vanguard Consumer Discretionary ETF, and Invesco NASDAQ Internet ETF. When investing in Amazon through funds, it is important to consider the fund's fees, investment strategy, and diversification across different stocks and sectors.

How to buy Amazon stock for beginners

Step 1: Do your research

There is an understandable appeal to owning shares of a company you interact with regularly, but what you know about a company as a customer doesn't always equal knowing it as an investor. Before buying Amazon stock, make sure you understand what investing in Amazon means. This can include researching the company's management, revenue, net income, earnings, and competition.

Step 2: Decide whether to buy Amazon stock

You can find Amazon's current stock price by searching for the company's trading ticker, AMZN, on a financial information website or through your online broker. Before you commit, consider how you will achieve diversification and your future investment plans.

Step 3: Consider how much to invest

How much you should invest in Amazon depends on your financial situation, current holdings, and investment goals. The stock market is considered a long-term investment, and financial experts typically warn against buying any stock with money you'll need within the next five years.

Step 4: Open a brokerage account

Buying Amazon stock requires a brokerage account, and online brokers offer the quickest and easiest ways to open one. Look for a broker with low or no commissions, excellent customer service, and useful tools and resources.

Step 5: Buy Amazon stock

Once you have a brokerage account and have decided how much to invest, it's time to buy Amazon stock. You can do this through your online broker's website or trading platform. You'll be asked to choose an order type, which determines when and how your order is executed. The two most common types are market orders and limit orders.

Alternative ways to invest in Amazon

If you don't want to buy Amazon stock directly, you can invest in the company through mutual funds or exchange-traded funds (ETFs). This allows for easy diversification, as these funds hold Amazon stock alongside many other stocks.

How to buy Amazon shares

Step 1: Do Your Research

Before buying Amazon shares, it's important to understand the company's business, financial health, and competitive landscape. Look into Amazon's management, revenue, net income, earnings, and competitors. You can find Amazon's financial reports on its investor relations page or the U.S. Securities and Exchange Commission (SEC) website. Additionally, consider your financial situation, current holdings, and investment goals to decide if Amazon stock aligns with your portfolio strategy.

Step 2: Decide on Your Investment Budget

Determine how much you want to invest in Amazon shares. Consider your budget, Amazon's share price, your investing strategy (lump sum or dollar-cost averaging), and your other investments. Ensure you have sufficient funds to cover your basic expenses, emergency fund, and retirement savings before investing in Amazon.

Step 3: Choose a Brokerage Account

To buy Amazon shares, you'll need a brokerage account. Compare different brokerage platforms and choose one that suits your needs, offering features like commission-free trading, user-friendly interfaces, and mobile apps. Some popular brokerage platforms include Fidelity, Vanguard, Charles Schwab, Robinhood, Webull, and Computershare.

Step 4: Open and Fund Your Brokerage Account

Sign up for your chosen brokerage account and deposit funds into it. Most brokerages allow fee-free stock trading, but be mindful of any account minimums or fees. Consider the type of account you want, such as an individual retirement account (IRA) or a taxable investment account, based on your investment goals.

Step 5: Place Your Order

Log into your brokerage account or trading platform and search for Amazon's ticker symbol, AMZN. Decide on the number of shares you want to buy or the amount you want to invest. Choose between a market order, which executes immediately at the current market price, or a limit order, which only executes when the stock reaches a specific price you set. Review your order details before placing the buy order.

Step 6: Regularly Review Your Investment

Monitor your Amazon investment's performance regularly to evaluate its progress. Compare its performance against benchmark indexes like the Nasdaq 100 or S&P 500. Analyse Amazon's financial data and public filings to gauge how the company is handling its finances over time.

How to research Amazon's financials

Amazon's financial statements are publicly available, and they can be used to analyse the company's financial health and performance. These statements include the income statement, balance sheet, and cash flow statement.

Income Statement

The income statement provides an overview of the company's financial performance over a specific period, usually a fiscal quarter or year. It includes information on sales, costs of sales, operating expenses, and other expenses. For example, Amazon's income statement for Q1 2024 shows that the company had total net sales of $143.3 billion and a net income of $10.4 billion.

Balance Sheet

The balance sheet provides a snapshot of the company's financial position at a specific point in time. It includes information on the company's assets, liabilities, and shareholders' equity. For instance, Amazon's balance sheet as of December 31, 2017, would show cash and cash equivalents, marketable securities, inventories, accounts receivable, and other assets.

Cash Flow Statement

The cash flow statement shows changes in the company's cash position over a fiscal period. It starts with the net income figure from the income statement and adjusts it for non-cash expenses, changes in balance sheet accounts, and other cash flows. Amazon's cash flow statement includes information on operating activities, investing activities, and financing activities.

Key Financial Ratios

Analysing Amazon's financial performance can also be done through evaluating key financial ratios. These ratios provide insights into the company's profitability, liquidity, and efficiency. Examples of such ratios include:

• Net Profit Margin Ratio: Indicates the company's efficiency in converting sales into profits.
• Operating Profit Margin Ratio: Evaluates the company's ability to generate cash from operations.
• Return on Assets (ROA): Shows how well the company is utilising its assets to generate income.
• Return on Equity (ROE): Measures the company's ability to generate profits relative to shareholders' equity.
• Current Ratio and Quick Ratio: Assess the company's ability to meet short-term obligations.

By examining these financial statements and ratios, investors can gain a deeper understanding of Amazon's financial health, performance, and potential risks and rewards.

How to decide how much to invest in Amazon

• Your budget: Ensure you have enough money to cover your essential expenses, such as bills, and build an emergency fund before investing in Amazon.
• AMZN's price: Consider the current price of Amazon stock (AMZN). Before the 2020 stock split, one share was valued at nearly $2,800. After the 20-for-1 split, a single share is now worth around $100.
• Your investing strategy: Decide whether you want to invest a lump sum or smaller, steady amounts over time (dollar-cost averaging). The latter approach may help you pay less per share on average and get your money working for you in the stock market sooner.
• Your other investments: Consider how Amazon fits into your overall investment portfolio and your plans. Amazon may not be your only investment, so ensure you diversify your holdings to manage risk.
• Your financial situation and goals: Assess your financial situation, including your risk tolerance, current holdings, and investment goals. If you're new to investing or have a small amount to invest, consider fractional shares, which allow you to purchase a portion of a share.
• Amazon's business and performance: Research Amazon's management, revenue, net income, and competition. Understand the company's direction and performance by reviewing its financial reports and expert analyses.
• Diversification and risk management: Investing in individual stocks can be risky, as your portfolio is vulnerable to price swings. Consider investing in a diversified mix of index funds or exchange-traded funds (ETFs) that hold Amazon and other stocks to lower your overall risk.
• Time horizon: The stock market is generally a long-term investment. Financial experts typically advise against investing money in stocks that you may need within the next three to five years.
• Emergency fund and short-term goals: Ensure you have an adequate emergency fund and are saving for any short-term financial goals before investing in individual stocks.

How to choose a broker

Choosing a broker is an important step in your investment journey. Here are some key considerations to help you select a suitable broker for investing in Amazon funds:

Know Your Financial Goals and Investment Style:

Understand your financial objectives for investing in Amazon funds. Are you saving for retirement, wealth building, or a home down payment? Your goals will influence the type of brokerage account you choose.

Also, consider your investment style. Do you prefer long-term investing, day trading, or automated trading? Different brokers cater to different investment styles.

Evaluate Account Features:

Look into the various account types offered by brokers, such as brokerage accounts, retirement accounts (IRAs), custodial accounts, 529 plans, and trust accounts.

Additionally, assess the available investment options (stocks, bonds, ETFs, mutual funds, etc.) and the trading platforms provided (web-based, desktop, or mobile). Choose a broker that aligns with your preferences and needs.

Evaluate Fees and Requirements:

Brokers charge various fees, including account fees, commissions, margin rates, transaction fees, and advisory fees. Compare these fees across brokers to find the most cost-effective option for your investment plans.

Also, consider any minimum balance requirements to avoid unexpected monthly fees. Top brokers often have low or no minimum balance requirements.

Research and Account Amenities:

Look for brokers that offer valuable research tools, investment screeners, charting capabilities, and real-time quotes. These features can help you make informed investment decisions.

Additionally, consider the deposit and withdrawal methods and their associated fees and timing.

Security and Account Protection:

Ensure that your chosen broker complies with regulations set by agencies like FINRA and the SEC. Also, check for adequate insurance coverage, including FDIC, SIPC, and supplemental insurance for larger balances.

Look for brokers that offer robust security measures, such as protection against fraud and two-factor authentication.

Test the Brokerage Platform:

Before committing, test out the brokerage platform by setting up an account with a no-minimum deposit, if possible. Get a feel for the platform's usability and functionality to ensure it meets your needs and expectations.

Remember, you can always switch brokers if you're unhappy with your initial choice.

Frequently asked questions