It feels like Wall Street adopts and abandons a fad faster than Hollywood influencers.
In early 2021, Bitcoin and cryptocurrency were all the rage. Then came along GameStop and AMC. That’s old news now.
The hottest new trend on the Street? SPACs, or Special Purpose Acquisition Companies.
For the unfamiliar: SPACs are essentially shell companies with no business interests when they’re first established. They’re taken public on the stock market as a way to raise capital – then they purchase an existing private company.
The agreement is mutually beneficial: the SPAC now has a legitimate business interest, and the acquired company becomes publicly traded without going through the usual processes.
Proponents of SPACs argue they make it easier for companies to go public and allow the average investor to invest in early-stage private companies. However, just like everything related to investing, there are plenty of risks associated with SPACs that the average investor is unaware of.
Risks like:
- Your shares being diluted more than you think
- Your SPAC not finding a company to merge with
- Speculative frenzy
It’s easy to be intrigued by the shiny new object on Wall Street, but this can expose you to unnecessary risks. If you have questions about SPACs or other Wall Street trends, give us a call now at 513-563-PLAN (7526) or book online here, and we’d be happy to answer them.
Regards,
Nikki Earley, CFP®
