October 6, 2020

How to Invest in Spotify

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Spotify is the biggest music streaming service in the world. Read on to learn how to invest in Spotify and if it's right for your portfolio.

Investing in stocks is essential as part of your wealth building strategy. Smart stock investments have more potential for growth compared to bonds and other securities.

Luckily these days, the barrier to the stock market has never been so low. There are lots of investment apps that allow you to buy stocks with just a few dollars.

Founded in 2006, Spotify is a Sweden-based top music streaming service. It went public on April 3, 2018, on the NYSE (ticker symbol SPOT). It currently has nearly 300 million users (including over 130 million paid premium subscribers) across 92 countries.

Here's a step-by-step guide of how to buy Spotify stock. We'll also talk about some factors to consider before investing in a company.

Disclaimer: CreditDonkey does not advise you to invest in any particular company. This article merely provides guidance on how you can invest in Spotify.

1. Find the Right Online Brokerage

Spotify stock is listed on the New York Stock Exchange (NYSE). Make sure the brokerage you use has access to this exchange. Just about all U.S.-based brokerages offer access to the NYSE market.

When choosing a stockbroker, consider these factors:

  • Minimum opening deposit
  • Commission fees and other fees
  • Level of service, account types, and other products
  • Does it support fractional shares?
  • Will you be trading actively or buy-and-hold?
  • How much research do you need?

Luckily, most major brokerages have eliminated trading fees. However, some apps may have a small monthly fee for using the service.

If you're a beginner without a lot of money to invest, fractional shares will be important. This lets you purchase just a tiny share of a stock. Not all brokers support this.

 RobinhoodM1 FinanceWebull
 Visit SiteVisit SiteVisit Site
 

Robinhood

M1 Finance

Webull

OFFER
Get a Free Stock (worth between $2.50 and $200) - Learn More

SPECIAL OFFER
Commission Free Stock Trading - Learn More

SPECIAL OFFER
Free Stock for An Initial Deposit of $100 or More - Learn More

 

Benefits and Features

Stock Trading
$0
$0
$0
Minimum Deposit
$0
$100
$0
Fractional Shares
Yes
Yes
No
Good For
Beginners; Active traders
DIY investing with passive portfolio managementExperienced investors; Active traders
 Visit SiteVisit SiteVisit Site

Robinhood: Pricing information from published websites as of 04/18/2020.

M1 Finance: Pricing information from published website as of 02/28/2020

Keep reading for our top recommended brokers to buy Spotify stock.

2. Open and Fund Your Account

After you've chosen your brokerage, it's time to open an account. Usually, you need to provide your name, address, contact info, and Social Security number. There is no credit check for a regular brokerage account.

Next, you will need to deposit funds into your new account in order to start trading. To do so, you will need to link a bank account. Then you can fund your account via electronic transfer from your bank. This usually takes 3-5 business days to clear.

There are several different account types you can open (note that not all brokerages support every account type):

  • Taxable: A general purpose investment account
  • Joint: An account shared between two individuals
  • Retirement (includes Traditional and Roth IRA)
  • 529 College Savings
  • Custodial: An account set up for a minor

3. Purchase Spotify Stock

Lastly, all you have to do is purchase Spotify stock. Spotify is found under the ticker symbol SPOT. Just search for SPOT in your brokerage platform and input how much you'd like to buy.

There are two types of orders you can execute to place your trade:

  • Market order: Execute the transaction now at the current market price.
  • Limit order: Set a specific price at which you wish to buy. This gives investors more control. But if the stock never hits the price you set, the trade will never be executed.

For brokerages that offer fractional shares, you can purchase just a tiny piece if you don't have enough money for a full share. This allows you to still be able to invest in Spotify even if you only have $10 to invest.

Some brokerages don't support fractional shares. In that case, you will need to have enough money for at least one full share.

Consider if Spotify is right for your goals and risk tolerance. This comes down to what kind of investor you are.

Are you looking for passive income through dividends? Usually large, stable blue chip companies pay dividends, but have less growth. Spotify stock does not pay dividends. Is this something you want?

How much risk can you afford? Remember that stocks can be volatile, some sectors more so than others. Spotify will carry more risk than blue chip companies. So it's best if you can commit to holding your investment for a few years to ride out any downturns.

Pros and Cons of Buying Spotify Stock

Pros:

  • Currently the biggest music streaming service
  • Growing revenue yearly
  • Invests heavily in technology to bring better service to users

Cons:

  • Growing competition from Amazon and Apple
  • So far has not had a positive annual net profit

How to Analyze Spotify's Financials

Before investing in a company, it's smart to do some research. This helps you form a more informed decision on whether the stock is a good buy or not.

It's also smart to take a look at the company's competitors. Spotify's competitors include Apple and Amazon, both of which offer music streaming, along with tons of other services. It's important to compare Spotify's financials and growth against the competition.

Here are some things you can look at to evaluate a stock. Most brokerages will provide a summary of the main numbers for each company, as well as a chart of its historical performance.

  • Annual report: Details the company's financial performance, including income and cash flow statements, revenue, and expenses. Most companies will have this for free on their website.
  • Quarterly financial statements
  • Profit margin (%): How much profit the company gains for every dollar in sales. The higher number, the better.
  • Return on equity (%): How much profit the company generates with each $1 of the shareholders' money. The higher number, the better.
  • Price-earnings ratio (P/E): The company's current stock share price to the company's average earnings per share. Usually, a higher P/E ratio means investors are expecting higher growth.
  • Debt-equity ratio (D/E): How much debt the company has compared to its shareholder equity. Usually, a higher ratio means more risk to investors. But you have to consider the industry.

How to Reduce Risk

Any stock investment will carry some risk, even if you do your research carefully. The best way to minimum risk is by diversifying your portfolio.

In other words, don't put all your money in just Spotify stocks. Instead, spread out your investments into many different stocks. That way, if Spotify's price falls, you'll still have others to carry you through. It's recommended to have 10-20 stocks in your portfolio for diversification.

It's also smart to invest in stocks in different sectors. Spotify is in the Communication Services sector, which may experience more volatility. To spread out risk, also buy shares of stocks in other sectors like Financial, Healthcare, Technology, etc.

An easy way to reduce risk is by investing in index funds. These funds follow a specific market index (like the S&P 500). One fund contains hundreds of securities, so you're instantly diversified. You can have the majority of your portfolio in index funds, and then just pick a few specific companies to invest in.

If you're investing for the long term, another strategy is dollar cost averaging. This is when you spread your stock purchases over set intervals (say once a month), instead of buying in one huge lump sum at once. Sometimes you'll buy when the price is lower, and sometimes when the price is higher. This reduces the impact from the market volatility.

Best Brokerages to Invest in Spotify

Here are some of our top recommended brokerages to buy Spotify shares. All these brokerages have no trading commissions.

Robinhood
Robinhood is one of the most popular investment apps for beginners. It has no minimum to get started. A big benefit is that it supports fractional shares, allowing you to invest in stocks with as little as just $1. Note that Robinhood only offers individual taxable accounts.

M1 Finance
M1 Finance is a unique hybrid DIY brokerage and robo-advisor. You choose your own stocks and build your own portfolio. Then M1 will automatically manage it for you at no cost. It also supports fractional shares. The minimum to start is $100.

Stash Invest
Stash Invest is designed for new investors who need a little handholding. It guides you to pick stocks aligned with your goals and risk tolerance, but you can also choose your own stocks. You just need $1 to start investing. There is a monthly fee starting at $1/mo.

Webull
Webull also has no trading fees or minimum investment. It offers better research tools and analytics for more experienced investors. It's also a good choice for active traders with free extended trading hours. However, it doesn't support fractional shares.

Fidelity
Fidelity is a great choice if you're looking for a full-service brokerage with a wide variety of account types and other investment products. There is no account minimum. Fidelity also offers fractional shares from as little as $1.

Bottom Line

Before investing in any stock, it's smart to do research on the company to see if it's a good fit for your portfolio. After that, it's just a matter of finding the right brokerage for your needs. Remember to regularly review your investments to see how they're performing and if you need to make any adjustments to your portfolio.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

CreditDonkey is a paid Affiliate/partner of Stash. Investment advisory services offered by Stash Investments LLC, an SEC-registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.

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