Invest in a company versus buying the product

EFFIE ZAHOS
Editor-at-Large · 12 April 2021
Many of us buy from big brands but have you ever thought about investing in them as well? Here’s a look at what to consider and how the numbers stack up.

You may have heard that instead of keeping your money in the bank, you should consider buying shares in the bank. The same might be said for some of the products you purchase – whether that’s a new phone, TV or a new outfit.

I thought I’d give this concept a whirl by taking a look at some of the big brands including Apple, JB Hi-Fi and Myer. It’s important to note that these are hypothetical examples and past returns are not a guarantee of future performance.

A new iPhone or an investment in the Nasdaq

Let’s start by looking at buying an iPhone versus investing in Apple. You could invest directly in Apple (you’ll need a broker that allows you to trade international stocks) but, for the purposes of this hypothetical example, we are looking at investing in the BetaShares NASDAQ 100 ETF (ASX: NDQ). This ETF is comprised of 100 of the largest non-financial companies listed on the NASDAQ market with Apple Microsoft, Amazon and Tesla currently among the top holdings.

The team at InvestSMART crunched the numbers and found that if you had invested the current cost of a new Apple iPhone 12 Pro ($1,699) in NDQ five years ago it would be worth $4922.92 (assuming dividends are reinvested) as at 7 April 2021.

LG 55″ TV or JB Hi-Fi shares

The next option I have explored is buying an LG 55″ TV worth $999 or investing in JB Hi-Fi (ASX: JBH) shares. The calculations by InvestSMART found that if you had invested $999 in JB Hi-Fi five years ago it would be worth $2,935.20 (assuming dividends are reinvested) as at 7 April 2021.

A new outfit or Myer shares

Finally, how about buying a $600 outfit from Myer or buying shares in the company? InvestSMART found that if you had invested $600 in Myer shares five years ago your investment would be worth a dismal $177.52 (assuming dividends are reinvested) at 7 April 2021. In this case, the investment wouldn’t have worked in your favour.

How do you choose which shares to invest in?

As the hypothetical examples above show, sometimes an investment in the company will produce a strong result while in other circumstances you may end up with a loss. This is a risk that comes with investing and it’s important to be prepared for volatility.

If you’re thinking about investing in shares here are some tips:

  • Invest in what you know. Start with companies that you know or industries or sectors that interest you. It can make sense to stick with large companies as they are easier to research and have a proven track record.
  • Keep an eye on financial news to work out what is happening in the economy that may affect the company or industry.
  • Think about how the company makes money, if it has a competitive advantage and what could impact the company in the future.
  • Look at the important financial ratios including dividend yield, earnings per share (EPS) and PE ratio.
  • Don’t rush in. Make sure you do all your research first.

 

If you’re comparing online share trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to providers’ websites. The information displayed is based on an average of six trades per month. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of online share trading companies.

Cover image source: G-Stock Studio /Shutterstock.com


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This content was reviewed by Editorial Campaigns Manager Maria Bekiaris as part of our fact-checking process.


Effie has more than two decades of experience helping Aussies make the most of their money. Prior to joining Canstar, Effie was the editor of Money Magazine She is an author and one of Australia’s leading personal finance commentators.

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