In our March 2017 Newsletter we discuss some key retirement saving statistics, events affecting the markets, and helpful information to better understand an IPO. Download our Newsletter Diversified Wealth Management Solutions March2017_Newsletter
How Americans are saving for retirement
Recent estimates indicate that the Social Security Trust Fund will run out of its surplus in 2034. Once this occurs, program payouts are expected to be worth only about 77 percent of current benefits. Unfortunately, one-third of retirees rely on social security payments for at least 90 percent of their retirement income. With social security payouts likely headed for significant reduction, contributing to self-directed retirement accounts is more crucial than ever. Just how are Americans doing when it comes to saving for their future?
How America saves
According to a TransAmerica Center survey, the typical American expects to retire at 67 but actually ends up retiring five years earlier than anticipated. A shortened career means less time for earning and saving, as well as more time spent withdrawing from accounts. This further emphasizes how saving for retirement is even more crucial than some Americans might assume.
To understand how America saves for retirement, let’s examine savings patterns by various cohorts. The following information is taken from “The State of American Retirement” report by the Economic Policy Institute.
Going public: inside IPOs
Following months of speculation, Snap Inc., the makers of Snapchat, officially went public in early March. Snap Inc. was originally privately-owned with limited investors, but they are now opening up their business to public investors by initiating an issuance of stock. Let’s dive into the process of initiating an IPO, how it works, a brief history of IPOs and terms relating to when a company “goes public.”
Defining “IPO”
An IPO—sometimes referred to as a “stock market launch”—is when a private company is made available for ownership by public investors. Typically, an IPO refers to the first time a company goes public (though a company can “go public” more than once). The most common type of company to initiate an IPO is a young, small company looking to expand by obtaining additional capital from a broader range of investors.
Filing for an IPO
The first step of filing an IPO is when a private company has an external team initiate the process. The IPO team consists of underwriters, accountants, lawyers, individuals with knowledge of protocol regarding SEC operations and additional personnel when necessary. Next, information is compiled regarding the company’s operating procedures and financials. This information is used to create the prospectus for the company that will eventually be disseminated to the public. Then, the prospectus is finalized and submitted for final audit by a third party. Once approved, the company files the prospectus with the SEC and targets a date for the IPO. The price of an IPO is decided by many factors, including the company’s prospectus, industry trends, the profitability of the company, investor confidence and more.
The history of IPOs
IPOs can be traced back as early as the second century BCE, when Rome issued the modern-day equivalent of joint-stock from legal bodies of independent ownership units. Move forward nearly two millennia and the rise of the East India Company resulted in the first ever government-backed initial public offering in 1602. According to the Museum of American Finance, ownership shares were first made available to the American public in 1783; public shares were issued by the Philadelphia-based Bank of North America, which was set up by Robert Morris with alleged support from Benjamin Franklin and Alexander Hamilton.
Related terms to IPOs
Here are a few terms you may hear associated with an IPO and what they mean in relation to the process of “going public.”
Break issue is when a stock from an IPO trades below the original asking price within a first few months of being publicly traded.
Eating stock is when there are insufficient buyers for a stock following an IPO. Typically, underwriters guarantee a certain level of buyers and if that level is not met, the underwriters must absorb the difference. Usually, underwriting fees are high enough that underwriters won’t take a net loss on the venture in the event of eating stock.
Public offering price is the initial amount for which the stock sells. Typically, this is compared with the subsequent value of the stock in order to demonstrate how the price has changed over time.
Risks of investing in IPOs
Much like any other type of investing, buying shares of an IPO comes with the inherent risk of market fluctuation. It may also be difficult to predict how stock from a newly-public company will perform in its first few months, as it may take time to gauge investor demand and the market share of the company. Additionally, companies could possibly time the market in such a way that the IPO is favorable to market conditions.
Diversified Wealth Management Solutions, LLC “Diversified Wealth” is a registered investment adviser located in Fresno, California. Diversified Wealth may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from notice filing requirements. This information is intended for clients and interested investors who reside in states and countries in which Diversified Wealth is qualified to conduct business. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Information, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we believe reliable but we do not guarantee the timeliness or accuracy of this information. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser, tax professional, or attorney before implementing any strategy or recommendation discussed herein. This article was written by Advicent Solutions, an entity unrelated to Diversified Wealth Management Solutions, LLC. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Diversified Wealth Management Solutions, LLC does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2015 Advicent Solutions. All rights reserved.