Ask the Fool

The Lockup Period

Q: I read that shares of Beyond Meat were down because of its “IPO lockup period.” What’s that? — J.H., Los Angeles

A: It’s common in initial public offerings (“IPOs,” when companies first issue stock to investors) that insiders who hold shares are not allowed to sell any for a set period of time after the IPO — typically between three and six months. That’s the lockup period, and it’s meant to keep share prices stable or rising. Stock prices often head south for a while once the lockup period expires and some insiders start selling.

In the case of Beyond Meat, when the lockup period ended, about 80% of the company’s shares became available for trading. The company posted strong third-quarter results the day before the expiration, but shares dropped around 20% upon expiration anyway.

It’s often wise to steer clear of IPOs for their first year or so, to give the shares time to settle down.

Q: What does it mean if a company is described as growing too fast to be profitable? — D.L., Coventry, Rhode Island

A: A company’s profits are simply what’s left after its expenses are subtracted from its revenue. But expenses are, to some degree, under the control of company management.

For example, if a company wants to grow briskly, it might spend as much as possible hiring more workers and advertising. It might even cut its prices to win customers from competitors. Such moves will shrink its profits and can lead to losses. Some companies will even borrow heavily to invest in growth. Trading profits for growth can work out well, for companies such as Amazon.com, or poorly, if it ends in bankruptcy.

Fool’s School

Surprising Facts About Retirement

Leave your retirement up to chance at your own risk. Most of us need to be socking away funds for our futures and investing that money effectively. Here are some things you should know:

¯ Most people are underprepared for retirement. About half of Americans aged 35 to 44 have less than $25,000 saved for retirement, per the 2019 Retirement Confidence Survey. Folks in that boat do have some time to take action, but they should save aggressively, probably aiming to save more than 10% of their income each year.

¯ It’s important to have a plan for retirement. Determine how much money you’ll need at retirement, and what your income sources will be. Most of us can expect Social Security income, but that’s not likely to be enough. The average Social Security retirement benefit was recently around $1,475 per month, or $17,700 annually.

¯ Don’t forget to plan for health care costs. A 65-year-old couple retiring today will spend an average of $285,000 out of pocket on health care, according to Fidelity Investments. That’s for expenses beyond what’s covered by Medicare, and it doesn’t include long-term care.

¯ Many people plan to retire in their mid- or late-60s. But thanks to job displacements or health concerns, most Americans actually retire by 65, making it all the more important to be financially ready. If you retire at 62 and live to, say, 87, you’re looking at 25 years of retirement! (The Social Security Administration notes, “About 1 out of every 3 65-year-olds today will live past age 90.”)

¯ It’s not too late to improve your financial health. If you can save and invest $10,000 per year for 20 years and your money grows at an average annual rate of 8%, you can amass close to $500,000.

Don’t be afraid to consult a professional for retirement planning advice. You can find a fee-only pro near you at NAPFA.org. You can also get a lot of clear and concise retirement advice by trying our “Rule Your Retirement” service at Fool.com/services.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.