How To Buy Amazon Stock (AMZN)

Amazon.com Inc. (AMZN) has transformed from a small online bookseller, founded by Jeff Bezos in his garage, into the largest e-commerce company globally, expanding into sectors like web services and advertising. With over 200 million Prime members worldwide, the company reported revenue of more than $191 billion AUD ($143 billion USD) by September 2023.

Amazon's share price has risen over 87% in the past five years, despite the market downturn in 2022. Currently, Amazon shares trade around $206 AUD ($154 USD), a drop from their peak of $249 AUD ($186.12 USD) in July 2021, but still up by nearly 62% in the past year.

For those interested in investing in Amazon, here’s a step-by-step guide:

1. Open a Brokerage Account

To invest in Amazon shares, an online brokerage account is necessary. If you don’t already have one, explore various brokerage platforms and apps that offer fee-free trading options. Be mindful of potential fees and account minimums, and consider your investment objectives when selecting the type of account.

For retirement savings, a Registered Retirement Savings Plan (RRSP) may be a good option. Holding Amazon shares in an RRSP offers tax-deferred growth, with no tax payable to the IRS or CRA. Keep in mind, withdrawals from an RRSP are subject to income tax in Canada, and contribution limits apply ($30,780 for 2023 and $31,560 for 2024).

For general savings goals like building wealth or a home purchase, a taxable investment account provides more flexibility, allowing access to funds without penalties.

2. Determine an Investment Budget

Deciding how much to invest in Amazon requires consideration of personal financial goals. Ensure that financial priorities like bills, emergency savings, and retirement planning are in order before allocating funds toward Amazon stock or other investments.

Amazon's current share price of approximately $206 AUD ($154 USD) is significantly lower than its pre-split price of nearly $3,750 AUD ($2,800 USD) before the 20-to-1 stock split in June 2022.

Consider an investment strategy, such as dollar cost averaging, where smaller, consistent investments are made over time. This strategy may reduce the average price paid per share, allowing capital to grow in the market sooner.

Also, assess how Amazon fits within a broader investment portfolio. According to Tom Forte, managing director and senior research analyst at D.A. Davidson and Company, Amazon investors are typically long-term thinkers, aligning with the company’s growth-oriented approach.

3. Research Before Investing

Before proceeding with the investment, it's essential to research Amazon's financial health and performance. As a publicly traded company, Amazon regularly files detailed reports with the U.S. Securities and Exchange Commission (SEC), providing transparency on its operations and growth. Thoroughly review these filings to ensure confidence in the company's future direction before making any decisions.

Placing an Order

Once ready to invest in Amazon, log into the online brokerage account or trading app, enter Amazon’s ticker symbol (AMZN), and choose either the number of shares or the amount to invest.

Next, decide on the type of order:

• Market Order: Buys or sells shares at the current market price.
• Limit Order: Executes the transaction only if the stock reaches a specific price set beforehand.

Amazon is traded on the Nasdaq exchange, with standard trading hours from 9:30 a.m. to 4:00 p.m. ET, Monday through Friday. Many brokerages also offer access to pre- and post-market trading.

Be Aware of Currency Conversion Fees and Taxes

For those trading American stocks like Amazon from Canada, brokerages manage the necessary paperwork. However, currency conversion fees of 1% to 4% will apply when purchasing or selling shares, in addition to the exchange rate.

To minimize these fees, consider keeping funds in a U.S. dollar bank account, or using Norbert’s Gambit. This involves buying a stock or ETF listed on both U.S. and Canadian exchanges, converting Canadian shares into U.S. shares through your brokerage, and selling the U.S. shares to avoid conversion fees.

Regarding taxes, U.S. investments producing dividends are subject to a 15% withholding tax. However, if the investment is held within an RRSP, this tax is avoided, as RRSPs are recognized by the IRS.

Regularly Review Investment Performance

Whether holding a single stock or a diversified portfolio, reviewing the performance periodically—whether monthly, quarterly, or annually—is essential. Compare the investment's performance with benchmark indexes like the Nasdaq 100 or S&P 500 and track Amazon's financial data through its public filings.

Selling Amazon Stock

When ready to sell Amazon shares, simply log into the brokerage or trading app, enter the AMZN ticker symbol, and specify the number of shares to sell.

For those with significant gains, consulting with a tax professional can help optimize tax strategies. In Canada, capital gains tax applies only to the growth of the investment, and 50% of the growth value is taxed at the marginal tax rate. Additionally, estate tax may be owed to the IRS if U.S.-based investments exceed $5 million USD.