Shares of Amazon (AMZN 1.30%) plunged after the company released its first-quarter earnings report last month. Recently, the company's stock dropped to a 52-week low and lost nearly all the gains accumulated during the pandemic.
While some investors may be worried about the future of Amazon's stock, there are others standing on the sidelines ready to buy. Amazon announced plans for a 20-for-1 stock split in March, and many investors have been waiting to jump in to collect their additional shares. The current stock prices make the stock even more attractive for those who see Amazon as a potential investment opportunity.
If you're thinking about adding shares of Amazon to a retirement portfolio, there are a few things you should consider before pressing the buy button. We'll explore the pros and cons of a Roth IRA and give you some pointers to determine if Amazon deserves a spot in your portfolio.
Image source: Getty Images.
What you should know about Amazon
The recent headlines about Amazon may have your head spinning. Let's step back and look at some numbers, as well as what's ahead for the tech behemoth.
Amazon's first-quarter 2022 earnings call took place on April 28, and the company's stock suffered in response. The company reported a net loss of $3.8 billion in the quarter. This includes a $7.6 billion loss on Amazon's stake in electric vehicle maker Rivian. On the flip side, Amazon Web Services (AWS) is driving profits for the company, with revenue of $18.44 billion. That's an increase of 37% year over year.
Let's not forget about Amazon's stock split. On March 9, Amazon revealed plans for a 20-for-1 stock split, and the stock soared. Now the stock is dancing around its lowest levels since the pandemic, and the stock split may be right around the corner.
Here are some important dates you should be aware of if you are interested in following Amazon's stock split:
- May 25, 2022: Amazon's 2022 annual meeting of shareholders will take place. Shareholders will vote on the 20-for-1 stock split.
- May 27, 2022: If shareholders agree to the stock split, all shareholders of record by this date will receive 19 additional shares for every one share of Amazon in their account.
- June 3, 2022: The stock split will take place.
- June 6, 2022: Amazon's stock will trade on a split-adjusted basis. More people will have a chance to buy whole shares of Amazon for roughly 1/20 of its presplit price. If Amazon stock traded at $2,000 per share before the split, then whole shares of Amazon would be around $100 on June 6.
Don't let the idea of a stock split fool you: It's more of a cosmetic makeover. The company is chopping up existing shares into bite-sized pieces. Although you will have more shares in your account after a stock split, the value of your shares will remain the same.
Does Amazon make sense in your Roth IRA?
The Roth IRA (individual retirement account) is a tempting offer for people who expect to be in a higher tax bracket in the future. Instead of paying your tax bill later, you can contribute after-tax dollars to a Roth IRA today, so long as you meet the income requirements.
Once the money is in your Roth IRA, your contributions can grow tax-free. Then, after you hit 59 1/2 and have met the requirements of the five-year rule, you can withdraw your money 100% tax-free.
Although the Roth IRA is considered the darling of retirement accounts, there are some drawbacks to consider. For starters, the contribution limits aren't as high as what you would see in other accounts. If you're under 50, you can only contribute up to $6,000 to a Roth IRA in 2022. If you bought Amazon at a four-figure share price and you only have $6,000 in a Roth IRA, buying Amazon's stock could ruin your diversification goals. It's best to aim for a well-diversified portfolio of assets to help you reduce risk in your retirement accounts.
A Roth IRA isn't the only way to invest in Amazon
There are alternative ways to invest in Amazon stock without locking up your money for a certain period of time.
You can enjoy more flexibility with a taxable brokerage account. This account allows you to touch your money whenever you want. However, it may be a better idea to wait at least a year before selling if you want to take advantage of the long-term capital gains rates.
Assess your situation to determine the best strategy
It's important to assess your overall financial situation and goals to determine the best accounts for your assets. It's also important to do your research on companies that you want to invest in before hitting the buy button. By doing your due diligence and research up front, you can choose the best investments and accounts that align with your desired lifestyle.
