SpaceX recently launched its initial public offering, a move that briefly made CEO Elon Musk the world’s first trillionaire on paper.

Financial adviser Paul Hood joined News On 6 at 4 p.m. to explain how IPOs work and what the offering could mean for investors.

How an IPO works

Hood said an IPO allows a company to raise additional capital while giving some existing owners and early investors an opportunity to sell shares.

“What people have to understand is the big boys get the first bite of the apple,” Hood said. “They underwrite it, they take it, and then when it’s released, the shares become available.”

He said those early shareholders are often company employees, investment banks and company founders. Once trading opens to the public, investors can buy and sell the stock like any other publicly traded company.

Expect price jumps and dips

Hood said investors should not be surprised by sharp price swings in the early days of trading.

“When it went live, it went up super high, and then it was way down because people were selling off while it was high,” Hood said. “There’s going to be some ups and downs, and that’s probably pretty normal, especially at the beginning.”

He said stock prices are initially set by investment bankers, but market sentiment can quickly drive prices higher or lower.

“It gets driven up because of greed, and then it drops because of fear or people capturing their gains,” Hood said.

What investors should consider

Hood cautioned against making investment decisions based solely on excitement surrounding a high-profile company.

“I’m not giving any financial advice, but you really shouldn’t make financial decisions based on fear and greed,” Hood said. “If you want to buy that stock, I would buy it to hold, and I would not bet your financial future on it.”

Hood said SpaceX has the potential to accomplish significant things in the future, but investors should view it as a long-term investment rather than a quick way to make money.

Could SpaceX end up in your 401(k)?

Hood said SpaceX could eventually become part of retirement portfolios through mutual funds and other investment products that hold the stock.

“It will filter its way into potentially 401(k) plans, but through mutual funds and those kinds of things,” Hood said.

He said regularly investing through retirement accounts allows investors to buy shares over time, whether prices are high or low.

“If it’s high, yay. If it’s low, double yay—you’re buying it on sale,” Hood said.