%VIRTUAL-SkimlinksPromo%2014 is predicted to the year of the initial public offering (IPO). So how do you go about investing in one?
The Royal Mail initial public offering (IPO), in October last year, whetted many people's appetites for new London listings when its shares jumped nearly 40% the following day. Partly thanks to its success, experts are now predicting that 2014 will spell a revival in the IPO market. What is an IPO?
An IPO stands for initial public offering, which means the first sale of a company's shares to the public. For example, Royal Mail was previously owned by the Government, but now it belongs to shareholders – banks, pension funds and individual investors who bought its shares. An IPO is also referred to as 'going public', as the company begins trading on a public stock exchange like the FTSE 100 or FTSE 250.
In the days of the dotcom boom, investors could throw money at new companies coming to the stockmarket and be almost guaranteed to make money. Even last year, investors in the Direct Line IPO enjoyed strong returns. Still, it pays to be cautious about a new listing, even when the company is a familiar name.
This year there are at least 20 companies slated to list in London (and experts from Deloitte are predicting that there could be as many as 100) – everybody from retailers to banks are getting in on the action. Some of the bigger IPOs that could happen this year include TSB, the bank that separated from Lloyds last year, discount store Poundland, and Zoopla, the property website.
But before you jump headfirst into being a Poundland or Zoopla shareholder, what should you consider before investing in an IPO?
Firstly, it depends what kind of investor you are. An IPO offers an exciting opportunity for investors, but they often happen very quickly so you'll have to be a fairly active investor to know about them to begin with. Some IPOs are only available to institutional investors anyway (i.e. pension funds and big fund management houses), meaning private investors can be locked out until the first day of trading.
It might sound obvious, but always read the company's prospectus before taking any decisions, or have a financial adviser explain it to you. Chances are you're familiar with a company like Pets At Home (also said to be considering an IPO this year) and what they sell, but it's unlikely you know the numbers behind the company.
How long has the chief executive been in place, for example? How much money did it make last year? Without getting too deep into company financial structures, you'll need to understand why the shares are "priced" as they are, and whether or not that represents good value.
Equally, it's important to find some objective research on the company you're thinking of investing in so you're not just relying on what the company has to say about themselves, which will naturally be positive.
As with all investment decisions, it's imperative that you take adequate financial advice before taking the plunge, or not least understand the consequences – investments can go down as well as up, after all. Everybody remembers the feted Facebook IPO in May 2012 – on the US technology exchange Nasdaq – and everybody also remembers how much the shares fell in the months afterwards. The stock has now recovered, but in the weeks that followed the opening bell, the social network seemed like the worst investment ever.
This also begs the question – are you investing for short- or long-term gain? If you're not looking to benefit from opening price spikes, it could pay to see how the IPO plays out over its first few weeks on the market.
Bear in mind that there could be a "lock-up period" associated with any new company shares, so a private investor is obligated to hold them for a certain period of time after listing. This can be frustrating if the shares drop by half their value the day after the IPO and there's nothing you can do but wait.
It's important to use a good stockbroker with a good relationship with the banks handling the listing when investing in an IPO – typically because with a new listing, private investors usually aren't the first group that the company wants to target. However, an online sharedealing site is usually the best place to start. For example, many of the main sites offer a free email alert service to keep investors updated with new IPOs.
Details of how to buy shares will be available in the company prospectus: there is an "offer period", when the applications for shares is open, and a broker (such as Hargreaves Lansdown) or wealth manager can secure them for you. The offer period will then close, and the shares are admitted to the stockmarket for general trading.
Investing in an IPO isn't without risk, but the rewards can be great, as Royal Mail showed. And remember that if you missed out on the IPO, it's always possible to buy on the general market – so you won't miss out completely.
Have you ever invested in an IPO? What IPO would tempt you into buying? Let us know your thoughts and experiences in the comments box below.
Mortgage rates are low at the moment, but even if you feel that your mortgage is a pretty good deal already, for a lot of borrowers there are better rates to be had. It's crucial to get the sums right – high upfront admin costs from a new lender or large early repayment fees from your existing mortgage provider could wipe out any savings. But, says David Hollingworth of brokers London & Country: "If you have an average standard variable rate (SVR) of 4.75%, a borrower with a £150,000 repayment mortgage over 20 years would pay £969.34 each month. Switching to a two-year fix with Norwich & Peterborough BS at 1.99% with £295 fee, free valuation and free legal work for remortgage would cut the payment to £758.11 a month, saving £211.23p.m." Over a year, that would mean a saving of £2,240, even with a £295 up front fee, and £2535 in following years. Potential saving: £2,535
Your home and contents insurance may be costing more than it needs to. Gocompare.comdata shows that 25% of customers who provided their buildings and contents insurance renewal price saved up to almost £160 by changing to a new provider. Potential saving: £160
With today's high cost of fuel, running a car is an expensive business. For a lot of people, particularly where public transport is sparse, giving up a car altogether is too big a challenge. But perhaps you could use it less, and take steps to bring down the cost of driving when it's unavoidable. The Energy Saving Trust says that just keeping your tyres pumped up correctly can save £31 a year, and turning off the air conditioning can save £77. Follow all the advice on the Energy Saving Trust's app, such as lift sharing and keeping your speed down, and the organisation claims you could save as much as £554 a year for a medium car covering medium mileage. Potential saving: £554
If you haven't changed car insurer recently, the chances are you could save a lot of money by doing so now. According to research from Consumer Intelligence for Gocompare.com, in October 2013, 51% of consumers could save up to £242.55 by moving to a new insurance provider. There are plenty of comparison sites to try, including AOL Compare, so it really doesn't take long to find a cheaper deal. Potential saving: £243
Start by finding out whether you could get a cheaper deal from a different energy supplier. If you haven't changed in the past, you probably can. According to gocompare.com, you could save around £309 a year just by switching to a cheaper deal (based on customers who switched energy supplier for both gas and electricity (dual fuel) using the Energylinx poweredGocompare.com platforms between 1 July and 30 September 2013).
Over the long term, there are plenty of ways to bring down bills that involve a relatively large outlay up front, such as ensuring your home is properly insulated. But just cutting your current energy use can have a huge impact on your energy bills. Some of the steps you can take are just a question of habit changing, such as switching appliances off instead of leaving them on standby. The Energy Saving Trust reckons the average household could save £50 and £90 a year just by unplugging or switching off at the socket. And turning down the washing machine temperature to 30 degrees, using a washing up bowl instead of leaving the tap running and only putting as much water in the kettle as you need can save you as much as £55 a year. Draught-proofing will save another £55, and proper 270mm loft insulation could save you up to £180 a year – taking into account the cost of fitting it the savings will take a couple of years to kick in. Potential saving: £689 (far more if you take all the right steps in the home)
Or at least, make your own. If you work in a town or city, the temptation to pop in and get a coffee can be strong. There's something comforting about sipping a hot coffee from those nice warm paper cups as you gear up for the working day. But if you stop to add up what it costs (including the cup), it may leave you cold. A Starbucks medium (OK, tall) latte costs £2.60 on the Strand in London. If you have one of those five days a week, 46 weeks a year (allowing for four weeks holiday), that means you are spending close to £600 – a tall price for a caffeine fix. If you make your own, a Bodum coffee maker costs £20 and a kilo of coffee costs around £13 and will make roughly 120 – 140. Missing the cup for the walk to work? Buy a Thermos mug for around £10. For £43, plus the price of milk, you can have coffee on the go all year round. Potential saving: £557
It's a familiar scenario for many well-intentioned would-be gym bunnies. You sign up super motivated. You buy new workout gear, perhaps you work out regularly at the start. But then something – a holiday, a nasty cold, late nights at work – breaks your momentum and you stop going to the gym. Eventually your workout clothes lounge around in the cupboard while the gym keeps your bank balance trim by taking that direct debit each month. Gym memberships vary, but if you pay £80 a month for full membership, that's £960 a year's worth of good intentions. Invest in some proper running shoes – you can spend a fortune but specialist shop Run and Become has decent shoes for £50 – and hit the road. Need motivation? Download a free app such as Couch to 5k to get you started and track your progress as you get fitter. Potential saving: £910
The range of mobile tariffs can be baffling. Many people end up on the wrong deal, perhaps paying for call time or extras they don't really need or use. There are a number of online tools and apps you can use to check your bill is not too high, such as Billmonitor and Mobilife. Enter your existing details and see if you could save money. In 2012, Billmonitor reckoned 26 million consumers in Britain were paying over the odds by as much as £164. The savings you could make will vary hugely, but it's certainly worth taking a look to see what you could save.
Apps like Viber and Whats App are also worth a mention as they allow you to text and call (Viber only) other users for free who have the apps on their smartphones. Whats App has ayearly subscription fee of around 65p, but the only other cost is the data on your smartphone plan if you're using 3G.
And when it comes to your broadband and home phone, it pays to find out if you are on the best deal. Dominic Baliszewski, telecoms expert at broadbandchoices.co.uk says: "Our own analysis has highlighted time and time again that a high proportion of customers do not actually switch broadband regularly enough to benefit from better pricing, which is crazy when you consider that switching can save you over £200 from your annual bill. Switching levels for broadband are woefully low when compared with energy or insurance services." Potential saving: £364
In the UK, households throw away an estimated 25 meals each month, worth a total of £60 a month or £720 each year. Avoid buying too much food, even when it seems like you are saving money. Try not to 'take advantage' of bulk buy deals you may not use, make good use of your freezer for fresh foods rather than putting them in the fridge and forgetting them, and change a few of your shopping and eating habits and you may save money.
Make a list and stick to it. Shopping online can help you avoid temptation, and if you do your shopping on Mysupermarket.co.uk, you could save even more. Enter your items as you would on a supermarket site, and it will find the cheapest supermarket for your needs saving on average £17 a shop, according to the site. On a weekly basis that makes £884.
Growing your own vegetables can also save money, although the set up costs can be relatively high if you are starting from scratch. But some foods are cheap and easy to grow, even if you have little space. If you are in the habit of buying bagged salad, you could easily save a significant sum by growing your own. Jane Perrone, gardening editor of the Guardian and author of The Allotment Keeper's Handbook, says: "The materials to grow your own probably cost something shy of £20 a year, for seeds and compost mainly - I usually use recycled containers." A standard bag of salad from a supermarket costs around £1, so if you would usually buy one bag a week, you would spend around £52 a year. Potential saving: £1,636
A Sky Sports bundle costs £43.50 a month, that's £522 a year. It's enough to take you somewhere sunny on holiday. It's enough to buy a whole new wardrobe full of clothes. Or, more importantly, several weekly food shops. Whatever else you could do with that money, it's certainly enough to make you think twice about whether or not you want to keep paying those subscription fees. Potential saving: £522
You might not be able to pay your credit card off straight away, but you can cut the cost. If your credit card has a rate of 18.9% and you have a balance of £5,000, then you could save £472 by doing a balance transfer to a credit card with a 0% introductory deal for the first six months. Potential saving: £472