It is always best for a beginner investor to start off slow and invest in what they know. There is no point in trying to reinvent the wheel by investing in obscure companies with the hope of quickly multiplying the investment. Stable companies with a good track record are the best bet for beginners to get their feet wet.
Amazon (NASDAQ: AMZN) dominates the e-commerce space, being the largest marketplace (44% e-commerce market share in the U.S.) of its kind. With the transition from retail commerce over to e-commerce constantly rising, the company is optimally positioned to take advantage of this growth. It has top-of-the-line warehouses and fulfillment centers all across the U.S. This allows for same day or next day shipping through its premium Amazon Prime service.
It has also been investing heavily in similar infrastructure globally as it looks to extend its fast shipping times to other major nations. Amazon is also eyeing up potentially untapped lucrative markets. It has invested more than $6.5 billion to help businesses in India transition online, for example.
One of the rapidly growing and higher margin parts of the business is Amazon Web Services (AWS). This has seen rapid growth in recent years, generating revenue of $9.95 billion in Q4 2019. While AWS only accounts for about 11% of total Amazon revenue, it accounted for 67% of total operating income in Q4. It is the leader in the cloud computing market, with a market share of about 33%.
These focus areas place the company in a great position going forward, allowing Amazon to be a stable and reliable investment for beginners. Its trajectory only looks upwards from here on out as it continues to capitalize on the transition to e-commerce and explore largely untapped major markets.
2. S&P 500
One of the easiest ways to get started investing and instantly get some diversification is by investing in the S&P 500 (NYSEARCA: VOO) through an ETF that tracks it. This index tracks the stocks of the 500 biggest-cap companies in the U.S. It is used as a benchmark for many investors to gauge the performance of their investments, and includes some the biggest names around, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG).
By investing in this index, you are diversifying your risk away from investing in individual companies. All of the individual significant bumps have been smoothed out when you factor in all 500 companies that make up the index.
While there have been times where the index has fallen significantly, over time there has been a gradual trend upwards, with a CAGR of 10.47% from 1919 to 2019. It is an ideal way for a beginner investor to take a more passive approach while they still learn more about investing. You won’t knock it out of the park by investing in the S&P 500, but you also won’t strike out in the long run.
Tesla (NASDAQ: TSLA) is another well-known company that has developed a strong reputation for its electric cars. While the company has had its ups and downs over the years, led by its eccentric CEO Elon Musk, it has a lot of upside potential.
With a firm grip on the rapidly-growing electric vehicle sector, holding a 60% market share in the U.S., Tesla is well-positioned. While other major car manufacturers in the U.S. have been struggling in recent times, Tesla has been moving along nicely. Its Q1 vehicle delivery figures were 10% better than forecasted, at a time when there is a lot of uncertainty in the auto sales market due to the coronavirus pandemic.
This is one of the most popular stocks at the moment and it does hold more risk than the other two options. This is because of uncertainty in the auto industry, as well as the electric car industry still being in its relative infancy. However, due to the coronavirus, the stock price is not considered overvalued anymore and it does present a lot of upsides if it continues to churn out strong results.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.