Hi there! If you‘re considering investing in Amazon, you‘ve come to the right place. As an experienced tech investor and analyst, I‘ve explored all the ins and outs of gaining exposure to this e-commerce and cloud computing juggernaut.
Whether you‘re a beginner investor or an experienced trader, a small amount or your life savings, this guide examines multiple avenues for adding Amazon to your portfolio.
I‘ll provide detailed overviews of the various investment methods, key stats and financial data, pros and cons of each approach, and some recommendations on sensible allocations for Amazon‘s risk/reward profile.
My goal is to arm you with everything needed to make informed decisions as we look under the hood of this trillion dollar company and explore how you can profit from its continued growth.
Quick Primer on Amazon the Company
Let‘s start with some key facts, figures and context before diving into the investment discussion:
Key Statistics:
- Founded in 1994 by current Executive Chair Jeff Bezos
- Generated $502 billion revenue over trailing 12 months
- Captures 38% market share of US e-commerce spending
- Over 200 million Prime membership subscribers globally
- Employs over 1.5 million people worldwide
- Current market capitalization of approximately $900 billion
Primary Business Segments:
- Online retail – Amazon‘s bread and butter, selling consumer goods direct to shoppers
- Amazon Web Services – Leading cloud computing provider for businesses
- Digital advertising – Rapidly growing ad business already at $30+ billion/year
- Subsidiaries – Additional revenue from Whole Foods, Ring, Twitch and others
Revenue Breakdown by Segment (FYE 2021):
Online retail - $386B (78%)
AWS cloud - $62B (12%)
Advertising - $31B (6%)
Other - $19B (4%)
With over 200 million Prime subscriber households now relying on Amazon for quick, reliable delivery of affordable goods, they‘ve effectively entrenched themselves in consumers‘ buying habits.
And AWS dominates the cloud infrastructure market – even key competitor Microsoft Azure only claims about 20% market share compared to AWS‘s 45% globally.
These core pillars fuel an incredibly successful business serving both consumer and enterprise needs.
Now let‘s explore how investors can access this company‘s substantial growth opportunities.
Investing in Amazon Stock Directly
Purchasing Amazon shares outright represents the most direct method for benefiting from increases in the company‘s stock price and overall value. Here are a few routes to accessing the stock:
Online Brokerage Accounts
Opening a brokerage account allows buying Amazon stock commission-free on public exchanges using the ticker AMZN. Leading choices include:
- Fidelity
- Charles Schwab
- E-Trade
- Interactive Brokers
I recommend Schwab for beginners thanks to $0 account minimums, extensive educational resources for new investors, and full fractional share capabilities.
Just be aware that while direct stock ownership provides greater potential returns, it also increases risks since your investment is completely tied to Amazon‘s singular performance.
1-Year Returns Buying AMZN Stock:
Schwab Investor Account -26.7%
Fidelity Brokerage Account -26.7% So while historically Amazon has demonstrated excellent long-term appreciation, stocks always carry downside risks that holders must be comfortable with.
Fractional Share Investing
If you wish to mitigate risks through diversification but still want access to Amazon, fractional share investing could be an ideal compromise.
Rather than entire shares at the current $100 per share price tag, platforms like SoFi, Robinhood, M1 Finance and others allow buying partial shares – even with just $1 or $5 if you wish. This makes Amazon‘s stock price more affordable for smaller investors.
The same percentage gains (or losses) apply on fractional shares. So if Amazon stock rises 10%, your fractional investment enjoys a 10% bump too.
Direct Stock Purchase Plans (DSPPs)
Amazon also offers an official Direct Stock Purchase Plan managed through Computershare. This provides existing shareholders a way to conveniently buy more stock without a broker.
However minimum initial and subsequent investments are steep at $250 and $50 respectively – making this plan better suited to those with already substantial Amazon holdings looking to increase their position over time.
Indirect Amazon Exposure Through Funds
If you‘re aiming for portfolio diversification but still want partial Amazon access, owning shares in ETFs, index funds or through robo-advisors can be prudent alternatives.
While your investment won‘t be a direct bet on Amazon itself, funds tracking broader technology sectors or even the total stock market likely have some degree of Amazon allocation which could benefit your returns.
Let‘s explore a few solid fund choices with Amazon exposure.
Index Funds
As a major S&P 500 component, Amazon receives a proportional weighting (currently around 3%) in index mutual funds and ETFs tracking this broad market benchmark. This includes giants like:
- Vanguard S&P 500 ETF (VOO)
- Fidelity® 500 Index Fund (FXAIX)
- Schwab S&P 500 Index Fund (SWPPX)
So while far less than buying AMZN outright, index funds still provide some upside tied to Amazon‘s performance.
And over the past decade, S&P 500 funds powered by Amazon and peers have delivered excellent returns:
10 Year Average Annual Return:
Vanguard S&P 500 ETF (VOO) 13.70%
Fidelity® 500 Index Fund (FXAIX) 13.08%So even fractional exposure to AMZN via index funds compound substantially over long periods.
Targeted ETFs
For more concentrated Amazon access, specialized ETFs tracking internet, e-commerce or information technology companies could suit investors wanting amplified benefits of AMZN‘s ascendance within these changing sectors.
Examples include:
- ProShares Online Retail ETF (ONLN) – Amazon is a top 3 position at ~11% weighting currently
- First Trust Dow Jones Internet Index Fund ETF (FDN) – Another fund where Amazon also occupies a top 5 slot
Performance has been mixed compared to broader indexes. But risk-tolerant investors aiming to overweight AMZN and similar peers could find these sector funds useful:
1 Year Returns:
ProShares Online Retail ETF (ONLN) - 37%
First Trust Dow Jones Internet Index ETF (FDN) -32%
Compared to S&P 500 1-year return of -18%So more volatility but also amplified upside/downside capture tied closely to the booms and busts of e-commerce and internet firms.
Robo-Advisor Investing
Robo-advisors like Betterment, Wealthfront and Ellevest offer automated portfolio management, typically through ETFs tailored to investor risk profiles.
So you won‘t directly own Amazon shares. But since many robo-funds incorporate broad market ETFs into clients‘ portfolios, Amazon likely receives at least a partial default allocation commensurate with its overall market cap weight.
Robos provide easy hands-off exposure for beginners, although typical annual advisory fees around 0.25% eat into net returns slightly. Still, an option combining diversification and some Amazon access that could suit new investors.
Key Takeaways Before Investing
Hopefully this overview has showcased viable avenues matching your budget and goals for profiting from Amazon‘s expected growth trajectory in coming years.
But as with any stock or fund investment, maintaining reasonable return expectations and risk management remains vital.
Here are key risk factors to consider:
- Amazon faces growing competition across all its business segments which could erode future market share
- Loss of current CEO Andy Jassy or senior leaders could hamper execution and innovation
- Potential antitrust legislation represents an ongoing threat, although its consumer popularity may provide some shielding
- Valuations still appear stretched with current P/E ratio over 80 as of early 2023
And as always, broader economic troubles or market downturns tend to hit pricier growth names like Amazon disproportionately hard during recessions or crises – so preserving ample portfolio diversification remains wise.
But for investors with long time horizons and accepting of higher volatility, Amazon likely deserves at least some portfolio allocation based on its solid moat and multi-pronged growth outlook in e-commerce, cloud and beyond.
I tried providing thorough research tailored specifically to your personal situation as an individual investor aiming to profit from one the world‘s most successful companies. Still have questions? Feel free to reach out anytime!
Happy investing!
