Most people are familiar with buying shares in a company (also known as stock). After all, it’s how your 401(k) works. But there’s another way to buy into companies: an initial public offering or IPO. While IPOs might not be for everyone, there are several advantages to this type of investment—especially if you’re looking for something that could yield significant returns down the road. Scroll down to learn a few key things before buying pre-IPO shares.
You can be there from the start.
One of the best parts about buying IPO stocks is being there from the start, while it may not seem like a big deal, being there from the beginning is a fantastic opportunity to participate in the company’s growth.
The stock market has been around for centuries, and it continues to thrive today because it allows people who don’t have wealth or power to invest their money in companies they believe in and help them grow.
You can buy low
Investors are often attracted to IPOs because they offer the potential for significant gains. However, it’s important to remember that investing in an IPO can be risky, and the price of IPOs usually drops after their issue date. So you’ll have made money if you buy a stock at the IPO price and then sell it immediately afterward. If you don’t sell your shares quickly enough, though—or if you hold on for longer than expected—you may lose money on your investment.
You can sell high
You can sell high and buy low. When you buy an IPO, you can stick with the number of initial shares. This means that if a company’s stock takes off and shoots through the roof, as long as you still own shares, there’s plenty of room for profit-taking. It also means that if it tanks, there’s time to get out before losing too much money.
You might receive perks
If you’re an investor, you might wonder what’s in it. After all, not every IPO is a winner. Some perks come along with buying IPO stocks. You can get a percentage of the company’s gross revenue or net profit. This compensation can be in the form of cash or stock options, but whatever it is—you’ll receive it as long as you hold onto those shares once they’ve been issued by the company and made available on the open market.
Diversify your portfolio
Diversification is a strategy to reduce risk by spreading investments across different asset classes. Diversifying your portfolio is important because it can help you avoid losses and gain profits. For example, if you put all of your eggs in one basket, there’s a good chance that when the market turns against that particular investment, the rest of your portfolio will also take a hit.
SoFi advisories say, “Members who don’t confirm their indications of interest are not eligible to receive an allocation of shares.”
There are many benefits to buying IPO stocks, and you can use these tips to your advantage. They will help you make the most of investing in a company that has just gone public, so keep them in mind as you research investment options for your portfolio!