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What Is Dollar-Cost Averaging and Why Does It Matter?

Do you want to know why Amazon stock is so expensive? Then get every information here! Today, most millennials are starting to come to the understanding that not only can you not really work until you die but you will have several years or even decades where you won’t have any income from a job.

Basically, they’re starting to appreciate the need to start retirement planning early.

While there are fewer millennials invested in the markets than any other generation currently living, it’s a bit understandable because of some hugely expensive stock valuations. Many are investing the simplest way there is – buy shares in companies you like to use.

For millennials, this takes some stress off researching earnings reports, but the companies most millennials like are those such as Facebook, NVIDIA, Shopify, and Amazon. FB, NVDA, and SHOP, the ticker symbols for the first three, are currently trading for hundreds of dollars per share. Amazon’s stock is trading for $3,478 as of this writing – for a single share!

Let’s get into why that is and explain how micro-investing can help you invest in companies you like regardless of their share price.

What Does a Stock Price Tell You?

Why Amazon Stock Is So Expensive?

Let’s start by explaining what a stock price is meant to tell you and other investors.  It really tells you three things:

  • Obvious, but the cost to buy one share of the company – Buying a share of stock gives you certain rights, and the price is the cost of gaining those rights as a shareholder.
  • The market capitalization of the company – The actual market capitalization is dependent on a bit of guesswork, but if you take the stock price and multiply it by the number of shares outstanding, that tells you what the market thinks the company is worth.
  • What investors think of the company – the market capitalization takes a bit of guesswork because the stock price might have some value not quantifiable at the time.  In other words, if investors think the company will be worth more in the future, they’ll buy the stock, causing the price to go up.

Why is Amazon’s Stock Price So High?

Amazon has been one of the outliers in the market because of the trails they’re blazing.  It isn’t just an e-commerce company anymore.  They have their own supply chain, from an airport to local delivery trucks.  They are taking over market share in every aspect of getting products from raw material to the customer’s door.

By doing that, they’re generating so much revenue in so many ways that the share price is following suit with no end in sight.  Put simply, the market believes Amazon is going to continue this growth for quite some time.

What Does a Stock Split Do?

Why Amazon Stock Is So Expensive?

Companies can do something called a “stock split” to lower the price.  This is where companies will take one share and split it into two or more parts.  The new share price of the split ratio is the old share price.  In other words, a $400 stock that undergoes a 1 to 4 (1:4) stock split becomes 4 shares worth $100 each.

Why hasn’t Amazon done this?  While Amazon’s former CEO, Jeff Bezos, never took a split off the table, splitting Amazon’s stock would encourage more buyers to purchase shares, which would inflate the share price even higher.

Since Amazon doesn’t necessarily need to raise money by selling more shares – we discussed how they’re blazing trails and making plenty of money as it is – the company managers don’t see a benefit to allowing their stock price to go up by making the price more accessible.

Stock splits are usually seen as positive signs that the company thinks it will continue to grow.  Amazon might continue to grow anyway, but a cheaper stock price could inflate that growth by adding more buyers.  By keeping a high share price, Amazon is able to maintain both a realistic valuation by discouraging excessive buyers as well as a level of prestige by looking like it’s expensive – since it is.

What Is Micro-Investing?

Why Amazon Stock Is So Expensive?

So how can you buy Amazon’s stock?  Enter micro-investing! Micro-investing is a concept developed for millennials who find investing, let alone in $4,000 stocks, difficult.  There are several apps that allow you to make regular, very small investments in either ETFs, mutual funds, or fractional stock shares.

How Does It Work?

You download the app of your choice (we’ll include some a bit later), sign up, and complete the process of linking your bank account.

You can set up either regularly scheduled transfers into your account or you can use the apps’ “rounding up” feature.  This allows the app to monitor your purchases and find the purchases with odd figures, such as a coffee purchase. 

It can round up the price you paid to the nearest dollar or some other figure, withdraw the difference between what you paid and the rounded-up number, and invest that into the portfolio you’ve set up.

These apps will allow you to buy fractional shares in companies like Amazon.  Essentially, the app you use will have an inventory of many different stocks.  They can then artificially split the stock into pieces and sell those fractional pieces to their customers.

You can still buy and sell with relative ease, but this not only makes buying shares in your favorite companies possible but also offers an efficient method to manage regular contributions to an investment portfolio.

Pros of Micro-Investing

  • Accessible investing with fractional shares
  • Low minimum requirements for initial investments
  • Apps allow automated investing, saving time, and maintaining consistency
  • Small amounts can add up to significant monthly savings

Cons of Micro-Investing

  • You won’t actually own the shares – you won’t have shareholder rights unless you purchase full shares.
  • While efficient, the amounts are still small and won’t lead to a complete retirement savings goal
  • Monthly fees for most apps

How To Start Micro-Investing?

You can choose from a number of highly rated apps to get started.  They make signing up easy and provide plenty of guidance to get you on the right path.

  • Acorns – This one is best for a set-and-forget sort of method.  You can connect to a credit card and let Acorns do the rest after you answer questions to create a “risk profile” resulting in investment recommendations. Monthly subscription fees start at $1 a month.
  • Stash* – Stash provides you with guidance about best investments based on your risk profile.  You can invest by using set fixed amounts.  They also have over 50 ETFs to choose from, so your choices aren’t limited. Stash Subscription fee starts at $1/ month. You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the Custodian. Please see the Advisory Agreement for details. Other fees apply to the bank account. Please see the Deposit Account Agreement.
  • Robinhood – Robinhood does not provide guidance on investments but does offer access to nearly any investment you might want, including cryptocurrency.  The platform is free, but more advanced features come with fees and larger investment minimums.

Is Micro-Investing Worth it?

Why Amazon Stock Is So Expensive?

Micro-investing is a great way to begin your investment journey.  It’s especially good at helping you get involved in your savings and understanding how your money can work for you over the long term.

However, you should use micro-investing as a springboard to other saving and investing endeavors.  You can use micro-investing to start using good spending habits and develop a knack for saving.

Micro-investing is a great way to begin your investment journey.  It’s especially good at helping you get involved in your savings and understanding how your money can work for you over the long term.

Once you have good saving habits and understand what investing instruments are available, you can really start creating a portfolio you can be proud of.  You might even be able to buy a few shares of Amazon!

Even though Amazon and some other favorite tech companies have nearly inaccessible stock prices, there are exciting ways to buy fractional shares and use micro-investing to start learning how to invest and get a better handle on your spending at the same time.

Micro-investing may not get you a full retirement account, but it can help instill some valuable lessons and open up doors to other methods of saving and investing.

Disclosure*:
Paid non-client endorsement. See Apple App Store and Google Play reviews. View important disclosures.

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"The second vice is lying. The first is running in debt."

Benjamin Franklin

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