The theme for this week is IPOs. An IPO, or initial public offering, refers to a stock that becomes publicly traded for the first time. When a company offers ownership for the first time to the public, it can seem like a great opportunity to get in on the ground floor, but investors should exercise caution when investing in IPOs.

So this week I’m sharing with you what you need to know when considering an investment in a newly minted publicly traded company.

Yesterday, we covered IPOs 101 and what this topic is timely right now. Today, I want to focus on how an IPO works.

When you understand why a company sells shares or ownership of the company to the public, you can better understand whether or not an investment in an IPO makes sense for you.

One of the primary reasons why a company will issue shares of their company to the general public is to raise money to grow and expand. Sure, companies can borrow money or seek other private investors to buy-in to their company, a la Shark Tank, but issuing shares on the stock exchanges raises a lot of money...and quickly.

When Facebook went public in 2012, they raised over $16 billion dollars in that initial IPO and look how they’ve expanded since then.

The catch with IPOs for us common folk is that there’s a 99.99% chance that you won’t have access to those initial shares. The investment banking firms that bring these IPOs to market allocate shares to their best clients only. So unless you’re a top client of JP Morgan, Goldman Sachs, or Morgan Stanley, you’ll have to wait for those IPO shares to start trading, which means that they may have already jumped up in price by the time you buy.

That’s it for today, Thanks for listening!

Tomorrow, come on back, because I’m going to look at whether or not most IPOs are actually a good investment.

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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