Should I buy IPOs for my portfolio?

Should I buy IPOs for my portfolio?

You may find it difficult to find IPO shares to buy if you are not already a very active and wealthy investor, but if that is the case then you may be a good candidate for IPO shares.

For investors who are less affluent and less experienced, you can still pick up a mutual fund or ETF that gives you IPO exposure, if it fits in with your portfolio.

In the 1990s, there was a mad rush to buy IPOs: an IPO could be traded at $10 at the beginning of the day and at $100 at the end – you could be instantly rich if you were able to get your hands on an IPO for some of the many tech firms that sprouted up before the turn of the millennium.

Yet there were many scandals surrounding their distribution which have surfaced in the past 10 years. Regulations surrounding the underwriting and distribution of IPOs have since been tightened, and they hit the market at a slower pace than they used to.

The market itself has followed suit and become much more cautious when dealing with new companies. Despite these measures, there is no guarantee that an IPO will be any safer for the average investor than it used to be.

A fairly high percentage of IPOs end up trading at prices significantly lower than their initial offering price. Because there isn’t much transparency, if any, into a company’s books before prior to their IPO, investors are basically flying blind in regards to whether the shares are priced fairly, or whether the company is as profitable as its name brand might suggest.

If your brokerage will allow you to invest in IPOs at all, based on your investment experience, the size of your account with them, your net worth, or what have you-you still must realize that IPOs are speculative in nature, and that, unless you have done significant research, and your portfolio could stand to lose the entire amount, it still may not be as good of an idea as the media hype might lead you to feel it is.