Here’s How To Invest in “Expensive” Stocks.

The other day, a valued member of the Girl$ on The Money community tagged me on a post. She was surveying her audience about whether or not she should purchase shares of Amazon or wait until the price drops.

On the day she asked this question (about 2 weeks ago), Amazon was trading for $2,675 per one share.

Here’s where the stock is at as of Friday 06/26:

 

AMZN

Source: Yahoo! Finance

One. Single. Share.

Now, here’s something I always tell my clients and students: You shouldn’t base your investment decisions solely on the price of a stock.

Instead, the decision should be based on the company itself and it’s potential to continue being a successful and thriving business for many years to come.

How do you find out more about a company’s potential? By doing your research (more on this later). 

I clearly remember when Amazon reached the price of $1,000 per share – back on June 2nd, 2017, to be exact. Many people probably felt like they “missed the boat.”

Now, over $1,600+ later, those same people realize they actually hadn’t and are now probably wondering the same thing once again.

You shouldn’t base your investment decisions solely on the price of a stock.

It can turn into a vicious cycle where you remain on the sidelines wishing you would have made the investment and constantly feeling like you missed your chance as you see the stock shoot up into the stratosphere.

Now, let’s be honest – Amazon’s current stock price is definitely quite astronomical. However, that doesn’t mean you can’t still become a part-owner – if you wanted to.

I also want to point out that Amazon is not the only “expensive” stock out there.

In this post, I want to provide you with strategies you can implement to any “pricey” stock you might be considering. Perhaps a stock that might seem expensive today but still has the fundamentals necessary to continue growing and thriving going forward.

Before we get into the strategies, here are a few questions you can use to kick-start your research before adding any stock to your portfolio:

  1. Do you believe the business will still be operating and thriving in the next 5-10 years? 
  2. Have you looked “under the hood” of the business to make sure it is solid? For example – do they have cash? how’s the debt? are they growing sales and profits?
  3. If the whole market “crashed” immediately after you bought the stock – would you still consider it a strong investment with the power to rebound?

Note: These question are just a starting point. In addition, I also look “under the hood” of the business by analyzing the company’s financials and other metrics. All of which I share in the Stock Analysis module of our Stock Investing Bootcamp for Beginners.

INVESTING WITHOUT RESEARCH

Now, once you answer the above questions and reach positive conclusions, here are some ways you can invest in companies that might seem “out of reach” based on price:

Buy partial shares: 

Some online platforms and apps will allow you to buy a fraction of any stock with whatever dollar amount you can afford.

Partial Shares

Instead of purchasing a full share, you would be buying 1/3 or a share or 1/4th of a share – whatever your money can afford you. 

For example,  let’s say you only had $200 to allocate to a stock that costs $2,600, you would be allowed to buy fractional shares and wouldn’t have to wait until you saved over $2K to be able to buy a piece of the stock. 

Some apps/investment platforms that allow for this include:

  1. M1 Finance – I wrote a post about it which you can check out here
  2. Fidelity – the app version of fidelity allows for partial shares
  3. Schwab – A new service called “Stock Slices” allows for partial shares

Note: All of these platforms are also commission-free which means you pay no fees to invest.

Buy an ETF that includes the company as a top holding:

ETF stands for “Exchange Traded Fund” and it is an investment vehicle that is very similar to an Index Fund. However, much more flexible and with a lot more options.

Although I am an advocate for high quality individual stocks, ETFs are a very close second when it comes to my favorite type of investments.

I can’t remember where I heard this from but I loved the analogy:

You can think of an ETF as if you were buying a variety pack of chocolates as opposed to just one kind:

STOCK VS. ETF

When you purchase an ETF you are buying a “basket” which contains pieces of different companies. The good news is that this “basket” often sells for a fraction of what one share of a stock would cost.

As an example, remember that, as noted earlier, one share of Amazon stock in this day and age will cost you ~$2,690.

Now, here’s an example of an ETF that has Amazon as a top holding and sells for a fraction of that price!

Example #1: This “basket” (ETF) sells for ~$123.75:

Screen Shot 2020-06-26 at 7.01.22 AM

Example #2 – This “basket” (ETF) sells for ~$50.25 (yup, less than $60):

Screen Shot 2020-06-26 at 7.00.05 AM

*Prices are valid as of maket closing on 06/26/2020.

Now – understand that not all ETFs are created equal.

There are metrics you should look into before making a decision on the best ETF for you and your investing goals. Checking out the holdings to make sure the companies you like are on the list are just one piece of the puzzle!

Note: You will notice I did not include the names of the ETFs in the examples above. This post is for educational purposes and to show you (with real examples) that you have plenty of options.

If you’re interested in learning more about this topic, check out the resources below:

  1. Join our ETF Investors community by clicking here.
  2. Check out this informative post which breaks down ETFs in simple terms.
  3. If interested, you can also a schedule a call with me. I can break this down in a step by step format, answer your questions, and offer some suggestions. For details of this one-on-one service, Email me: Hello@girlsonthemoney.com.

And that’s all folks!

Thank you for reading. Let me know in the comments if you found this post informative and practical.

Cheers to HEATLH and Profits!

Mabel

***

Stock Investing Bootcamp for Beginners: Enrollment is now OPEN for the summer 2020 edition of this class. We start in July! To receive full details and to enroll, make sure your info is here.

Understanding Your Investing Options: Looking for a Master Guide that explains in simple and practical terms ALL of the investing platforms available this day and age, types of investment accounts, types of investments, and beyond?! Check out this amazing resource.

 

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