SoFi Is Allowing Active Investing Customers to Buy the Instacart IPO. Here's What You Should Know First

SoFi announced it would allow its customers to participate in IPOs in March 2021, when the IPO market was red hot. However, by the time the capability was actually added to the platform, the IPO market had cooled off sharply. SoFi offered investors some shares in Rivian and Nubank in late 2021, but for the most part, it has not participated in any big deals.

That's all changing. SoFi is not just offering shares of Instacart to its brokerage clients, but it is serving as an underwriter on the deal along with about 20 other banks, which puts its investors in a better position to get shares if they wish to participate.

How to participate in the Instacart IPO

To invest in initial public offerings, or IPOs, through SoFi, you need to open a brokerage account (SoFi Active Investing), which can be done quite easily through its app or web-based platform.

For high-demand IPOs like Instacart, it's important to keep in mind that there are a limited number of shares available for distribution. As mentioned, about 20 other institutions are serving as underwriters on this IPO alongside SoFi. While anyone with an Active Investing account can participate, SoFi considers several factors when allocating shares, such as enrollment in SoFi Plus, the assets in your account, and prior IPO participation, if any.

To participate in an IPO, you'll need to log into SoFi and open your Active Investing account. From there, you can visit the IPO center and see what deals are live, as well as the expected date they'll actually go public (Note: Instacart is expected to start trading on Sept. 19).

You'll see a "start now" button next to each one, and if you click it, you can indicate how many shares you'd like to buy. On the day before the IPO, SoFi will notify you that it's time to confirm your buy order. On the morning of the IPO, SoFi will allocate shares to customers who have placed orders.

Should you invest?

IPO investing might bring visions of quick riches to your mind, and it's not difficult to understand why. There are certainly some IPO success stories; just to name a few examples:

• Visa went public at the height of the global financial crisis in March 2008 and has delivered 1,850% total returns to investors in a little over 15 years since.
• In perhaps one of the most impressive IPO success stories in recent history, Tesla went public in 2010 and has gained 16,820% since then. That's not a typo.
• As a more recent example, investors who bought shares of Airbnb at its IPO price in December 2020 have more than doubled their money in less than three years.

However, it's important to know that IPO investing is far from a guaranteed home run. Even at the peak of the 2021 IPO boom, a report by Nasdaq Economic Research found that after three years, 64% of companies that went public from 2010 to 2020 were underperforming the S&P 500 by 10% or more.

Let's take a look at some of the hottest IPOs from the 2020–21 hot IPO market. DoorDash went public in late 2020 and is perhaps the closest comparison to Instacart in recent years. Investors who participated in that IPO are down by 20% since that time, while they would have achieved a 21% return by simply buying an S&P 500 index fund.

Nubank, which was offered to SoFi members in December 2021, is down by 24% from its IPO price. Electric vehicle maker Rivian has fared even worse, down by 70% less than two years after completing its much-anticipated IPO. And some IPOs from that time period have performed even worse.

Should you buy the Instacart IPO through SoFi?

The bottom line is that if you want to invest in an IPO like Instacart, SoFi is an online broker that can help you do it. And this is certainly a welcome change that represents a general democratization of a process that has historically benefited wealthy investors.

However, if you do decide to participate in the Instacart IPO, or any others for that matter, it's important to realize that IPO investing can be a highly speculative way to invest and there's a chance you'll lose money.

You can help yourself avoid that by doing the same thing you're ideally doing every time you invest in a company's stock: your research. Companies about to perform an IPO file an S-1 with the Securities and Exchange Commission (SEC), which you can read to get information about the business and financials (you can find Instacart's S-1 here).

Do the work to understand the business and the financials, and make sure you're investing in what you think is a good business at a fair price. That doesn't guarantee you're investing in a winner, but it can help increase your odds -- whether you're talking about an IPO or not.

And to be sure, there's nothing wrong with speculating with money you can afford to lose, as long as you understand that's what you're doing and are prepared to accept the outcome if things don't go your way. But IPO investing isn't appropriate for everyone and it's important to expect a roller coaster ride in the stock price (in either direction) in the period soon after it goes public.