When a company offers its stock to the general public for the first time, it can represent a significant opportunity for investors. If you have an individual retirement account, you might be interested in putting some of your retirement money into this initial public offering or IPO. As a general rule, you can invest in an IPO with these funds, but it may not be as simple as you would hope.
When it comes to choosing investments for your IRA, your options are wide open. You are only prohibited from investing in three different items with funds from your IRA. You cannot put money into collectibles, life insurance or deals that would benefit you before retirement. Other than those three items, you can invest in anything, which leaves the door open for IPO investment. This is essentially buying stock, which is one of the most common IRA investments.
Initial Public Offering
If you can buy shares during an initial public offering, you could realize a substantial return on your investment. With this type of investment, stock of a company is offered to the public for the first time and, in many cases, more investors are interested in the stock than shares are available. This drives up the price of the stock in the market and substantial gains can be realized in a single day.
Even though you have the right to get involved in an IPO with funds from your IRA, that does not necessarily mean you can. IPOs are very difficult to get involved with for the average investor. An investment bank usually handles the IPO for the company. The investment bank gets a number of shares that it can sell to institutional and wealthy investors. Most of the shares are gone before an average investor gets a chance.
Even though you might not get involved on the ground floor of an IPO, you can still get involved on the same day. If you start trading as soon as the market opens, you can sometimes find stocks from the IPO trading already. These shares are being sold by the institutional and wealthy investors who already have them. You may have to pay more than the initial offering price for them, but the price could still go up throughout the day.