Why you should ignore the big Lyft IPO

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

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Ride-hailing company Lyft went public on Friday with an initial public offering of $72. It rose 9% over the course of the day, to $78.29. Things looked promising.

But then Monday hit. The stock dropped 12.6% its second day of trading, to close at $69.01.

“That is not a good sign that it’s plunging so quickly,” said John Divine, investing expert at U.S. News.

Should you buy Lyft?

Probably not.

Lyft’s volatility shows how much of a roller coaster the individual stock market can be.

“I consider it speculation and gambling to invest in individual stocks,” said Darin Shebesta, certified financial planner and vice president of Jackson/Roskelley Wealth Advisors. “You take on all of the company risk when you buy individual.”

When you buy into a company, you are simply betting on if it does well or not, he said.

Divine said consumers may be attracted to an individual stock because they are familiar with the company. But often companies going public will price their shares higher than what they’re worth. It’s best to wait it out.

“You should do your homework. Because if you aren’t a stock market sleuth, it can be a challenge to find what stocks are best,” he said.

That doesn’t mean you have to give up investing in individual stocks altogether if you have money you are willing to bet and you can afford to take on the risk, said Divine. But you have to recognize the potential consequences.

“You’ll probably have some winners and some losers,” he said. “But hopefully more winners.”

Where you should invest instead

Individuals should build their investing strategy around index funds, which track a group of stocks or other investment type. It’s typically much safer than an individual stock, said Divine. This is because they spread risk out among lots of stocks and tend to have low fees.

Next, diversify your investments. Your portfolio should have a mix of low- to high-risk investments, said Shebesta. This is so all your risk isn’t concentrated in the same type of investment. If you are looking for a safe place to grow your money, you may want to tap a high-yield savings account. You can learn more about them here.

Don’t know where to start? Here are five ways you should invest your money this year in five minutes.

Disclosure: Policygenius’ editorial content is not written by a financial adviser. It’s intended for informational purposes and should not be considered investment advice. Please consult a financial adviser for financial advice.

Image: Thought Catalog

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