Here’s How to Make Money Investing in Pre-IPO Stocks

You can create incredible wealth by investing in firms before they go public. Here, we're going to show you how to make money investing in pre-IPO stocks.

For many folks, they view initial public offerings (IPOs) as the way to get a crack at money doubling gains. But most people don't realize they're settling for overhyped and overpriced stocks.

While IPOs are the first time retail investors can buy a company's stock on the Nasdaq and New York Stock Exchange, you can see greater potential returns by investing in companies pre-IPO.

This is known as investing in pre-IPO stocks. It doesn't offer the same kind of risks you often see from IPO investing. However, you'll need a pre-IPO stock investing strategy to avoid the risks unique to buying shares while a company is still private.

That's why we're going to show you the benefits of investing pre-IPO, some of the risks, and a strategy to get started.

Pre-IPO Stock Investing Can Benefit Everyday Folks

The benefits of investing in pre-IPO stocks are fairly simple. By buying shares of a private company, you have the opportunity to make more money if the firm finds success and eventually holds an IPO.

So, once a potential IPO rolls around, you could end up being one of the sellers during IPO hype rather than the one buying the stock at inflated prices.

Plus, as a pre-IPO stock investor, you own equity in the companies you're putting money into that could eventually be converted into traditional stock or preferred stock.

Of course, while pre-IPO investing offers the greatest potential rewards to investors, there are some risks you'll want to be aware of as well.

The Rewards Greatly Outweigh the Risks When It Comes to Investing in Pre-IPO Stocks

Every investment has a risk-reward profile, and pre-IPO stock investing is no different. Statistically, most startups in the United States fail to get off the ground. Of course, some of these companies fail due to a lack of funding more than anything.

That's precisely why pre-IPO investing exists in the first place. So, now, courting equity investors is common among startups in need of financial backing.

While the risks are certainly there because of this, the rewards can be incredible.

Just look at Inc. (NASDAQ: AMZN). Before it became the near-trillion-dollar monopoly it is now, it was a startup formed by Jeff Bezos in his garage. When it was still considered a startup in the mid-1990s, Bezos' friends and family invested $50,000 each into the company pre-IPO.

Now, their investments are worth billions.

This is just one giant example of the potential investing in pre-IPO stocks has. But the point still stands that you can make a whole lot of money with just a little bit of cash. And the best part is now, you don't need $50,000. In fact, you can do it with as little as $50...

This is thanks to a little-known bill that was passed in 2012 called the JOBS Act. This made it so 240 million people across the United States could invest in stocks pre-IPO - something that was once exclusive to the country's top 1%.

That means everyday folks like you can now invest in the next potential Microsoft Corp. (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL), or Amazon while they're still in their adolescence.

And here's how...

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Pre-IPO Investing Strategy

If you're looking to become a pre-IPO investor, you'll want to have a strategy that maximizes your potential rewards while mitigating the risks.

While this is true for all forms of investing, this is especially true with pre-IPO stock investing because of the risks we talked about above.

Fortunately, the best strategy for investing in pre-IPO stocks comes from Money Morning Chief Investment Strategist Keith Fitz-Gerald. He calls this method the "50-40-10" strategy.

And what this means is that you're basically dividing your portfolio into three categories. Fifty percent of your portfolio is dedicated to defense stocks that are reliable and may even pay dividends, while 40% is for your blue-chip growth companies like Microsoft and Apple.

Then you get to the remaining 10%. This is the amount of your portfolio you dedicate toward more speculative plays like investing in pre-IPO stocks. By allocating only 10% to pre-IPO investing, you limit potential losses by limiting exposure.

Of course, 10% of your portfolio shouldn't go toward just one pre-IPO stock, either. You'll want to divide the 10% of your funds and invest it into a variety of pre-IPO stocks.

That way, even if eight out of 10 companies flop, the two that take off could completely cover your overall investment and even generate nice returns along the way.

And even if you feel like you don't know where to start, we've got you covered. In fact, you could start investing in pre-IPO stocks with as little as $50...

Here's how.

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