Reddit became a household name among the investor community last year when the users of the social media platform banded together in a subreddit group called wallstreetbets. The group hyped up the shares of gaming retailer GameStop to create a short squeeze for investors, bringing down a hedge fund in the process and displaying a newfound might for the retail investor.
Since then, Reddit has remained a meeting place for activist individual investors. Like the GameStop phenomenon, many popular Reddit stocks are risky plays not designed with a long-term mindset. But some popular Reddit investments are excellent long-term buys, including Amazon (AMZN -0.87%) and the Vanguard S&P 500 ETF (VOO -0.57%), an exchange-traded fund.
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1. Amazon
It's easy to see why Amazon is a popular stock in any environment. It's the largest e-commerce company in the world, and although there's been a steep deceleration, it's still growing and conquering new territory.
In the 2021 fourth quarter, sales increased 9% over 2021 to $137 billion, on top of a 44% increase last year. Sales came in at the higher end of guidance for 4% to 12% year-over-year growth.
Not only did Amazon make progress across its businesses, such as announcing a price increase for Amazon Prime and gaining new clients for Amazon Web Services (AWS), but it also entered a new space with its investment in electric-vehicle (EV) maker Rivian Automotive, which bumped up its net income in the fourth quarter.
Its recent announcement that its stock will undergo a 20-for-1 stock split has generated even more investor interest than usual. Shares that cost more than $3,000 tend to price out many small investors (unless they can buy fractional shares), so this split makes Amazon much more affordable for more people, and these may be the types of investors who are Reddit regulars.
The stock has been a tremendous gainer over the years, increasing by many thousands of percentage points over time. And it's still a strong player, gaining 290% over the past five years. The shares have been flat year to date, and they trade at only 50 times trailing 12-month earnings, a historically low valuation. Amazon is a great stock to hold with many years of growth still ahead.
2. Vanguard S&P 500 ETF
An index fund such as the Vanguard S&P 500 ETF is an indirect way to invest in many top stocks across the market. Since the value of the stock market tends to increase reliably over time, investing in an index fund gives investors access to those increases while reducing risk through diversification.
The upside of this is almost guaranteed gains, while the downside might be lower gains than picking individuals stocks. The solution for that is holding an index fund while also choosing great growth stocks, giving investors the best of both worlds.
Comparing, for example, Amazon and the S&P 500, we can see that Amazon seriously outperformed the market over the past five years. The S&P 500, however, gained significantly and benefited investors with secure and steady uphill movement.
AMZN data by YCharts.
Legendary investor Warren Buffett owns both Amazon and the S&P 500 index fund. He counsels investors to place most of the their money into index funds, since the average individual won't be able to pick stocks that can outdo the market.
Owning both the S&P 500 index fund and Amazon gives shareholders the potential for secure and reliable gains over many years.
