Initial Public Offerings (IPOs) can be enticing investments, offering potential upswings and access to popular brands. However, the IPO market can be volatile, requiring that potential investors do their homework –– from reviewing SEC filings to attending IPO roadshows.

Yahoo Finance Host Rachelle Akuffo joins Wealth! to break down what investors need to know before investing in an IPO.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: Let's switch gears here and talk Reddit. Reddit shares moving higher in the wake of last week's public debut, but what are some pros and cons of investing in a newly public company? Yahoo Finance's Rachelle Akuffo is here with a breakdown of what you need to know before investing in an IPO. Hey, Rachelle.

RACHELLE AKUFFO: Indeed, and Reddit is a great one to think of because this is really a community event when it comes to investing. But just because you like a company doesn't mean you should invest in it. So let's break down some of the top three things you should think about.

Number one, do your research on the company before you even think about venturing into this space. Now a company going public doesn't necessarily make it a good investment. A good place to look are SEC filings or platforms of course like Yahoo Finance where you can break down all sorts of things, including valuation, the share price, the business model, the financial health and the growth potential as well.

And something else that you can also perhaps see a little bit more about the company is what's called an IPO roadshow. So before a company IPOs, they go to a few select major cities and they highlight-- they really try and sell you on some of the best things about the company. You get to see how it works in person, and you also get a look at some of the key personnel involved in this as well. So one thing that's interesting, though-- oh, yes, Brad.

BRAD SMITH: Yeah, no, no, no. Continue number one, but perhaps let's go a layer deeper here. Should investors expect some volatility then?

RACHELLE AKUFFO: I mean, you definitely should. It is usually par for the course, that there is going to be some volatility because the markets need a bit of time to digest if the stock is priced correctly, and that can depend on supply and demand that could also depend on macroeconomic backdrop as well. So that's something to keep in mind.

And also you sometimes can look out for some big whale investors here. We saw Cathie Wood noted growth investor there, bought about 10,000 Reddit shares across her two ETFs, but you do have to keep in mind that this is a risky investment. There is going to be some volatility, not just in the short term, but also when the so-called lockout period ends.

That's usually up to about 180 days where a lot of the initial people who bought these IPO shares are now able to sell them. So expect some volatility and just keep in mind what this means for your overall financial plan. Don't go putting your whole tax refund into Reddit if that's not what you need to be. And most importantly, check that you're eligible. Just because something has IPO doesn't mean you're eligible.

Find a good brokerage firm, which allows for IPOs, and sometimes there can be minimum requirements in terms of the minimum amount of money you should have or the number of transactions. So make sure you choose the right brokerage firm. Some of the names, Vanguard is usually a typical one or Fidelity or perhaps if you like your online versions, you have things like Robinhood or E-Trade as well.

But just keep in mind, obviously, this is one part of your portfolio. So don't put all your eggs in one basket, don't get caught up in the FOMO. Do your homework that is much more important. Fundamentals over FOMO, Brad.

BRAD SMITH: Just lastly while we've got you here, Rachelle, we teased it at the top of the show. We can't let the viewers go without letting them know the results of the poll. So what have we got?

RACHELLE AKUFFO: You'd be surprised. So we actually did ask current Reddit users if they were willing to invest. It was an overwhelming no, and that was actually quite surprising because there was some buzz about some of these-- the affinity shares that were available for people who were like big users in Reddit, but 68% saying, no, I don't plan to. Just goes to show. Just because you like a company and use its products and services doesn't mean you want to invest in it. So take everything with a grain of salt, Brad.

BRAD SMITH: Oh, sad Snoo. Sad Snoo. It wasn't even close those numbers here and, of course, Snoo wasn't even close the mascot, the famed mascot for Reddit out there folks who we saw ringing the opening bell. Rachelle, thanks so much. We appreciate it.