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Investing

Here’s How to Buy Amazon Stock

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Whether you’re brand-new to the stock market or simply thinking about reallocating your existing portfolio, investing in shares of an individual company can be tempting — especially if you’re talking about an ultrasuccessful business like Amazon. Who doesn’t want a piece of that multibillion-dollar pie?

However, the importance of diversifying your portfolio is well-trodden ground in the world of financial advice, and for good reason. You want to have your eggs in as many baskets as possible. If you stash all your cash in a single company’s shares and that company’s value plummets, your entire investment portfolio is sunk, whereas you have more margin for error if you invest in a wide variety of assets.

For beginning investors, investing in exchange-traded funds and mutual funds can help you achieve diversification with a small amount of effort and expense and therefore could be a safer option than banking on the success of a single company (even one like Amazon).

But if you do want to purchase Amazon shares — or shares of any specific company — here’s how to do it.

Research the company

No matter how successful the company you’re considering seems to be, it’s important to do your homework and make sure you know exactly what you’re getting into. While no one can predict the future, you can make educated guesses about how well a company will continue to fare based on certain publicly available figures and performance metrics.

For starters, you might want to look up:

  • The company’s overall revenue and how it compares to revenue from previous years. Is it trending upward? Staying the same? Falling?
  • The company’s management strategy and performance. Have there been recent shake-ups, or does the leadership seem reliable and competent?
  • The company’s plans for the future. Is there a new product or business model in the works? Innovation can spur growth, but it also has a chance of failing.

For a large, publicly traded company like Amazon, these factors are easily searchable online. Amazon also has a special page for investors, which offers quarterly sales results as well as press releases, annual reports and shareholder letters.

Consult your portfolio

Once you have a handle on the structure, outlook and earnings of the company you’re looking to invest in, it’s time to take a second look at your own situation. How much do the shares cost, and how many can you afford to purchase? How much of your portfolio is dedicated to stocks (as opposed to bonds and other securities), and what’s the ideal proportion?

As of November 28, 2018, a single share of Amazon costs about $1,675. That’s a hefty chunk of change. If you can’t afford to purchase a share of Amazon outright, you can look into brokerages that allow you to purchase fractional shares. But if you can afford to buy one or more shares of Amazon stock, it’s important to consider your overall mix of investments and how much this purchase would shift the balance.

Investing in different types of assets is one of the best ways to protect yourself against market volatility, and while stocks can provide some of the best growth opportunity on the market, they also can come with more risk than bonds, government debts and other securities.

For many years, the rule of thumb was to invest in a percentage of stocks that was equal to 100 minus your age. For instance, if you were 40 years old, your ideal portfolio would consist of 60% stocks. However, a recent drop in returns from U.S. Treasury bonds (as well as an increased life expectancy) has shifted the balance. These days, many advisors suggest using a formula of 110 or even 120 minus your age.

Because Amazon’s stock is so expensive, purchasing just a few shares might add up to a large percentage of your overall asset allocation mix, so be sure to factor that possibility into your decision-making. And remember: No one rule or guideline will perfectly fit every investor. If you’re not sure what your ideal portfolio should look like, consider consulting with a licensed financial professional.

Log in to — or open — a brokerage account

In order to buy, sell and trade on the stock market, you need to have a brokerage account. There are different types of brokerage firms to choose from, from full-service operations that offer personalized help from financial advisors (such as Merrill Lynch and Morgan Stanley) to discounted DIY accounts that offer low fees but fewer services (including Vanguard and Fidelity). Brokerages also are split into margin and cash accounts. In the former, the brokerage lends you money to invest and treats your assets as collateral, whereas in the latter, you pay full price for each security you own.

The brokerage you choose will depend on your personal investment strategy and how much you’re willing to spend in exchange for extras like professional guidance. Low fees are attractive, of course, but it’s imperative that you research your broker’s background, according to the Financial Industry Regulatory Authority. In particular, look for any history of licensing issues, bankruptcies or disciplinary actions.

Once you choose a brokerage, you’ll be asked to provide some personal information, such as your Social Security number, income, employment status and more. The individual firm you decide to work with can give you full details about how you’ll be able to access and utilize your account once it’s opened.

Place your order

You’ve got your brokerage account up and running, you’re feeling confident about your decision, and you’re ready to put down the money. Now’s the big moment: It’s time to place your order.

Whether from an online interface or over the phone with a live broker, there are several types of stock orders you can place as an investor. Two commonly used orders are:

  • Market orders buy or sell a stock or other security immediately at whatever the current value of the share may be. That means you may not know exactly what you’ll spend on the share until the order is complete, as the value changes minute to minute.
  • Limit orders impose a “limit” on the amount you’ll spend on a stock. For instance, you might place a limit order on a single share of Amazon at $1,500, in which case the order will go through only if the value of the stock drops to that price or lower.

After you decide which type of order to make, place one for however many shares of Amazon (AMZN) you want. Once it goes through, congratulations! You own a piece of one of the most famous companies in America.

Monitor your investment

For all but the most advanced investors, playing the stock market is a long game. You usually stand to earn the most money by allowing the magic of compound interest to accrue over years rather than sweating the day-to-day price fluctuations securities are prone to.

However, because stocks are more volatile than other types of assets and because even very successful companies occasionally go under, it’s important to monitor your investments over time. After all, every investment does come with some risk.

With a large company like Amazon, you can keep tabs on company-related news, easily review quarterly reports and make reallocation decisions based on the firm’s performance over time. For press reviews, earnings reports and more important investor information, check out Amazon’s “Investor Relations” portal.

Although all investments carry risk, wise stock market buys can be one of the most efficient ways to put your money to work for you. The power of compound interest is one of the easiest way to set yourself up for success down the line. Just be sure to seek out professional investing help if you need it — because when it comes to the market, nothing is guaranteed.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

What Is a Solo 401(k)?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Self-employment comes with many perks, but you may think access to a 401(k) plan isn’t one of them. Considering the 401(k) is one of the most powerful and accessible investment accounts available to the American public, not having one can be a pretty big loss.

Good news, entrepreneurs: You can have your freelance cake and eat it too! There is such a thing as a solo 401(k), also known as a personal 401(k), individual 401(k), self-employed 401(k), or — our personal favorites — a solo-k or uni-k. Since the solo 401(k) rules are similar to those that govern traditional 401(k)s, you won’t miss out on the high contribution caps that come with combined employee-employer contributions.

So how does this unique solo retirement plan work, exactly? Who’s eligible, and how much can you contribute overall? Read on to learn more about this Goldilocks investment account for self-employed savers.

Solo 401(k) basics

A solo 401(k) is an investment plan designed to help you save for retirement by “deferring” a portion of your income and allowing it to grow tax-free on the market. This boosts your savings goal in a couple of key ways.

Investing your hard-earned cash takes advantage of the power of compound interest, turning even a small investment into a cushy nest egg down the line. In the short term, you’ll benefit from a tax advantage because 401(k) contributions don’t count toward your total taxable income. The exception to that rule is a Roth solo 401(k), wherein your contributions will be taxed today but won’t be subject to tax when you withdraw them later.

Any self-employed individual or sole proprietor is eligible to open a solo 401(k), and a wide variety of traditional 401(k) custodians also offer solo-k options.

If you’re familiar with the basic workings of a regular 401(k), you already know a whole lot about the solo-k too. According to the IRS, “These plans have the same rules and requirements as any other 401(k) plan.”

However, there are a few key differences in the nitty-gritty details for solopreneurs to keep in mind. Let’s take a look!

How much can you contribute to a solo 401(k)?

Like regular 401(k)s, solo 401(k)s come with generous contribution caps, making them an appealing option for those looking to aggressively save for retirement. You’ll be able to contribute up to 100% of your earned income, capping out at $19,000 — or $25,000 if you account for the $6,000 “catch-up contribution” available to investors aged 50 or over.

The total contribution cap — including “nonelective contributions,” i.e., the freelancer’s equivalent of employer contributions in a regular 401(k) — is much higher.

Your specific contribution cap must be determined using a “special calculation” based on your “earned income,” which, according to the IRS, is defined as your “net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself.” You can make these calculations using the rate table or worksheets in Chapter 5 of IRS Publication 560, “Retirement Plans for Small Business,” or feed your personal financial data into a contribution calculator, like this one from Fidelity.

No matter how much you earn, the overall contribution limits for a solo 401(k) match those of any other 401(k) plan. For 2019, that cap is $56,000 — or $62,000 for those eligible to make catch-up contributions.

There is one big caveat, however, which can catapult your retirement savings to the next level: the spousal exemption.

If you’re married and your spouse earns income from your business, he or she also can contribute up to the $19,000 elective deferral limit — and you can put in up to another 25% of your compensation as a profit-sharing contribution. That means your total contribution limit could effectively double from $56,000 to $112,000.

Solo 401(k) withdrawal rules

Now that we’re clear about how much money you can put into your solo-k, let’s talk about the most important part: taking it out again.

As is the case with a regular 401(k) plan, there are strict rules governing when you can (and must) make withdrawals, and there are penalties in place for those who withdraw their assets early.

In order to avoid taxes and fees, you must wait until you reach the age of 59 and a half before taking distributions from your solo 401(k) plan. You also may be able to access the money with impunity if you can demonstrate “immediate and heavy financial need,” per IRS rules.

If you do take out early withdrawals without meeting one of the exceptional circumstances, the money will count toward your total taxable income for that year — and will be subject to an additional 10% tax as a penalty. Of course, you’ll also be missing out on the opportunity to allow your money to grow.

Like most retirement plans, the solo-k is subject to required minimum distributions. In general, you’ll need to make your first withdrawal by April 1 of the year following the year in which you turn 70 and a half.

Other retirement accounts to consider

If you’re working for yourself, there are a number of alternatives to the solo 401(k) when it comes to saving for retirement.

An individual retirement arrangement (IRA), is an investment account that allows any individual to save for retirement, regardless of their employment situation. IRAs come in both traditional and Roth varieties. They are easy to set up and available through a wide range of financial institutions.

IRAs provide many of the same tax benefits as 401(k) plans. For instance, traditional IRA contributions may be fully or partially tax-deductible, depending on your circumstances, and while contributions to a Roth IRA are taxed, they are then available for tax-free withdrawal upon retirement.

However, IRAs carry a much lower contribution cap than 401(k) plans — just $6,000 for 2019 (or $7,000 if you’re aged 50 or over).

Another popular option for self-employed individuals is the simplified employee pension (SEP) plan. In a SEP plan, contributions are made by the business only, which means you won’t get a tax break on your personal income. The contributions will, however, count as a business expense, and they are deductible up to 25% of employee compensation.

Although SEP plans carry higher contribution limits than IRAs, the “25% of compensation” clause may drive the limit lower than it would be for a solo-k plan, depending on your income. SEP plans also don’t allow catch-up contributions for savers close to the age of retirement, and there’s no Roth option available.

Whether you work for yourself or someone else, saving for retirement is the foundation of any solid financial roadmap. For those who choose to strike their own path, a solo 401(k) plan is an excellent option for paving the road to retirement.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

Advertiser Disclosure

Investing

401(k) Contribution Limits in 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Contributing to your company-sponsored 401(k) is one of the easiest ways to make sure you’re set up when your golden years arrive. By starting early and maximizing your contributions, you’ll give yourself ample time to take advantage of the unique magic of compound interest — which, given enough years, can turn even modest savings into impressive cushions.

However, it’s important to remember that there are limits to how much you can sock away in a retirement plan, 401(k)s included. Furthermore, those limits have recently changed. Here’s what you need to know.

2019 401(k) contribution limits

Here’s a quick look at the IRS’ updated 401(k) contribution limits for 2019.

Type of Contribution

Limit Amount

Employee Contribution

$19,000

Catch-Up Contribution

$6,000

Employer Contribution

$37,000

Total Contribution

$56,000 or $62,000 with catch-up contributions

As you can see, the total contribution limit ($56,000) is broken down into different contribution methods, including elective deferrals — i.e., your own regular 401(k) contributions automatically taken out of your paycheck — as well as catch-up contributions and employer contributions, which are frequently made via an employer match program.

Let’s go over how each type of 401(k) contribution works in detail.

Employee contributions: the lifeblood of your 401(k)

The bulk of your 401(k) is likely to be made up of what the IRS calls “elective deferrals” — the percentage or dollar amount you contribute to your 401(k) from your wages each pay period.

Note that 401(k) contributions can be made either pre-tax or post-tax, depending on what kind of account you have. In a traditional 401(k), your contributions are tax-deductible and won’t count toward your taxable income for the year in which you make them. They will, however, be taxed when you withdraw them later.

In a Roth 401(k), on the other hand, your contributions will count as taxable income but won’t be taxed when you take them out. Furthermore, Roth 401(k)s are not subject to the same required minimum distribution rules as their traditional counterparts, said Malik S. Lee, a certified financial planner at the Atlanta-based Felton & Peel financial advisory firm.

“Most employers’ plans have Roth 401(k)s, but a lot of people don’t know to ask for it,” said Lee. Roth 401(k)s are “one of the hidden gems” you might find in your onboarding documentation, so be sure to read your paperwork carefully.

How employer contributions can maximize your stash of cash

Maximizing your 401(k) is the best way to rest assured you’ll be set when the time comes for retirement. In most cases, the easiest way to do that is to take advantage of your employer’s 401(k) match.

A match program works exactly as advertised: Your employer will “match,” dollar for dollar, the money you put into your 401(k) up to a certain percentage of your income, generally between 3% and 6%.

That might not seem like much, but it’s free money. Given the incredible power of compound interest, that small match can work out to a lot of money over time.

For example, let’s say you were making $50,000 and contributed 5% of your salary toward your 401(k). That works out to an annual contribution of $2,500. Now let’s say your employer matched up to 3%, which works out to an additional $1,500. You’ve just bumped your contribution from $2,500 to $4,000 — almost doubling your savings with zero additional effort. Pretty cool, huh?

Your employer also can make contributions outside of a matching program. For instance, the company might contribute a percentage of your overall salary regardless of how much you elect to pay in or a percentage of its annual profit. You have less control over these contributions, but they add to your total and count toward the limit.

Catch-up contributions: are you eligible?

If you’re age 50 or over, you’re eligible to make “catch-up contributions,” which means you can electively defer an additional $6,000 per year without incurring any tax penalties.

If you got a late start saving for retirement or were unemployed — and therefore unable to contribute to your 401(k) for a while — it makes good financial sense to make catch-up contributions to maximize your retirement savings.

However, if you’ve been steadily saving and already have a significant nest egg built up, it might make more sense to seek out alternative investment options, which can diversify your overall portfolio, said Lee. A financial advisor with fiduciary responsibility can help you decide which option is best for your personal goals.

What happens if you go over the limit?

Given the generosity of the 401(k) maximum contribution limit, it’s rare to exceed it. In fact, Lee said he hasn’t seen this financial faux pas happen in his career.

Although saving too much for retirement might sound like an oxymoron, if you do somehow exceed the limit, the tax benefits that make these accounts so powerful will stop working in your favor. In fact, you’ll be penalized by paying taxes twice: The excess contributions will count toward your taxable annual income, and they’ll be taxed when you withdraw them.

If you do overshoot the contribution limit, you should ask your account custodian to withdraw the excess amount by April 15 of the following year. Because it’s done to keep your account within the IRS guidelines, this money will not be subject to the 10% early withdrawal fee you would incur otherwise. It’s important to keep in mind, however, that any income earned on the excess deferral will be taxed as regular income.

Contributing to your 401(k) is an important step to take toward a well-deserved rest after a fulfilling career. Be sure to stay within the contribution limits to maximize your returns and minimize your taxes.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here