Can investing $10,000 in Amazon make you a millionaire?

At this point, Amazon (AMZN 2.82%) It is a famous stock that holds a dominant position in its industry. Early investors made a fortune, noting that the stock price has risen nearly 1,000% in the past decade alone. The stock price has risen 70% over the past year.

If the company continues to perform well, it could easily help it generate more wealth in the future as it has in the past. But before you buy, hit the pause button.

Amazon helped create millionaires

If you invested $10,000 in Amazon stock on January 1, 2000 (right before the dot-com crash), your investment would be worth over $470,000 today.

Okay, that’s not $1 million, but it’s a huge gain and much more than you could get with the same investment. S&P 500 The index is currently worth about $35,000. If you had added Amazon to your portfolio at that time and stuck with it, it would have been a big step towards millionaire status.

AMZN data from YCharts.

It is undoubtedly one of the most dominant online retailers. It has a strong cloud computing business. And while we’ve made some mistakes along the way, the company’s great success has more than made up for them. That’s actually part of the plan. Try something interesting and innovative and stick with what works.

Given the company’s massive size (its market capitalization is $1.8 trillion) and massive cash reserves, it has the funds needed to test new ideas on a large scale.

To put that last point into numbers, Amazon ended 2023 with approximately $73.4 billion in cash and approximately $13.4 billion in marketable securities. Long-term debt was only $58.3 billion, meaning its net cash position was about $28.5 billion. That’s a lot of cash!

So not only has Amazon’s growth helped make many investors rich, there’s good reason to think that Amazon could continue to make investors rich in the future if it invests as wisely in the future as it has in the past. past. There is one small problem.

How much risk are you willing to take?

Amazon returned 4,630% between January 1, 2000 and March 31, 2023. These are truly astonishing numbers. But could you only own one stock? Looking back, I can definitely say I should have done that. But putting it out in real time would have been much more difficult than expected.

Remember: January 1, 2000 was the height of the dot-com craze that drove stocks like Amazon to high levels. After the dot-com crash, Amazon lost more than 80% of its value. This was much worse than the S&P 500’s losses at the time. It took years for the stock price to recover.

AMZN data from YCharts.

And once that happened, the stock immediately lost about 50% of its value during the Great Recession. Over the past few years, we’ve lost almost as much again. And a 20% drop is honestly pretty common on Amazon.

Over time, the peaks and troughs of Amazon’s stock price are much greater than the peaks and troughs of the S&P 500 index. Unless you’ve actually lived through this kind of volatility, it’s hard to explain the courage it takes to hold on to stocks while they’re falling so sharply. This is especially true when the decline far exceeds that of the overall market.

So can Amazon help you become a millionaire? of course. But you shouldn’t bet everything on just one stock. The risks of having such a concentrated portfolio are enormous, and sticking to a single-stock approach is likely to be an emotional rollercoaster.

Many investors are probably selling out of fear at the worst possible time. A much better option would be to build a diversified portfolio that includes Amazon, or combine Amazon with a broad index ETF.

Emotions are usually the biggest problem.

The truth of the matter is that investing itself is not particularly difficult. As Wall Street icon Warren Buffett likes to say, anyone of average intelligence can do it.

But do you want to control your emotions during the inevitable bull and bear markets? It takes a lot of effort to do that, and most people aren’t up to it (all the time, anyway). Buying a single stock, even one with a history of tremendous success like Amazon, can actually make you a millionaire. But when you look at what it actually means to own just one stock, it’s not so easy.