Amazon's (AMZN 0.64%) first-quarter 2022 earnings call is scheduled for April 28, and many investors are tuning in to see if the e-commerce giant deserves a spot in their portfolio. Last month, Amazon's board of directors gave the company the green light to do a 20-for-1 stock split. This move sparked a lot of excitement among investors since the company hasn't done a split since the dot-com boom.
If you've got some extra cash tucked away in your Roth IRA (individual retirement account), you may wonder if you should load up on shares of Amazon. But before you dive in, you should do your research on the underlying business and determine if it makes sense to add the company to your retirement portfolio.
The 411 on Amazon's stock split
Amazon stirred up a ton of excitement among investors when the company announced plans to do a 20-for-1 stock split. This means shareholders will see their original shares chopped up into bite-sized pieces. Let's say you own one share of Amazon stock. You'll see 19 additional shares in your account after the stock split.
If you haven't been following Amazon's stock split timeline, here are some dates to keep in mind.
- March 9, 2022: Amazon broke the news about its highly anticipated stock split.
- May 25, 2022: Shareholders will have the final say when they vote on the stock split at the 2022 Annual Meeting of Shareholders on this date.
- May 27, 2022: If the stock split is approved, all shareholders on record by May 27 will participate in the stock split.
- June 3, 2022: This is the day of the stock split. Amazon will give shareholders 19 extra shares of stock for every one share in their account.
- June 6, 2022: If you want to buy shares at a lower price, Amazon's stock will be on the market for roughly 1/20 of its pre-split price. If Amazon stock traded at $3,000 per share before the split, then whole shares of Amazon would be around $150 after the split.
Don't get sidetracked by stock splits
Although the days leading up to a stock split can be exciting, you should know that the value of your shares won't change. Let's say you own one share of Amazon valued at $3,000. You'll own 20 shares of Amazon valued at $150 per share after the stock split. Your total value of Amazon shares is still $3,000.
Stock splits shouldn't be the ultimate factor in determining if you buy Amazon stock. Here are some company-focused questions to consider:
- How does Amazon make the majority of its money? What are the company's different streams of revenue?
- Who are their top competitors?
- What supply chain challenges can interfere with the company's revenues, and is the company in a position to overcome this?
- Can Amazon's annual prime day and other promotions boost sales for the company?
Is your Roth IRA the best place for your Amazon stock collection?
If you're bullish on Amazon, that doesn't necessarily mean you should add the company stock to your Roth IRA. Although a Roth IRA allows you to pay your income tax upfront and collect tax-free income later, this account comes with restrictions that can limit how many shares of Amazon you can add to your account.
For 2022, you can only contribute $6,000 to your Roth IRA if you're under 50. If you bought a whole share of Amazon for $3,000, that would take up 50% of your portfolio if you only have $6,000 in your Roth IRA. This would interfere with your portfolio diversification and put you at a huge disadvantage if the company goes belly up. You should avoid leaning too much on one stock if you want to sleep peacefully at night.
Fortunately, buying whole shares is not the only way to get Amazon in your Roth IRA. You can buy fractional shares and get a taste of Amazon in your account. Let's say Amazon is $3,000. You can use $300 and receive 1/10 share of Amazon. Fractional shares can also grant you a whole share after the 20-for-1 stock split. Your 1/10 share of Amazon would turn into two whole shares after the stock split.
Does Amazon fit into your Roth IRA?
Although it's tempting to throw your cash at the hottest stocks in the market, it's important to step back and do your research before you invest. You want to make sure the investment aligns with your goals, risk tolerance, and time horizon. You also want to make sure you're not setting yourself up for failure by depending on one company to supply your every need.
If Amazon is a good fit for your portfolio, you can add it to your Roth IRA or go shopping with a taxable brokerage account and bypass the limitations.