4 Key Investing Moves for Facebook’s New Millionaires

in Investing by

[dropcap]A[/dropcap] small army of Facebook employees and early investors will wake up Friday morning with increased clarity about the magnitude of their substantially higher net worth. With this wealth comes tremendous opportunity. And potential pitfalls as well. Sudden windfalls aren’t ever to be confused with permanent.

And the reality is many of the same core financial principles apply whether you’re handling a $200,000 401(k) or $20 million in stock options. Here are some bedrock principles to put all this good fortune on the right path:

Diversify (Part 1)

Yes, you rock. And so too does Facebook. Now that we’ve established those facts, your first job is to devise a long-term strategy to put your money to work. If you have options as well as RSUs, this means selling most of your Facebook stock. Yep, sell. Sound absurd? Just ask Cisco and Yahoo employees from 1999 if they’d love a do-over for how they handled their options back then. (For the record, both stocks still trade about 80 percent below their all-time highs.) Sure, Facebook might go the way of Apple, but the stock’s direction is close to a coin toss. The stakes are about to go up significantly. Diversify.

Diversify (Part 2)

Silicon Valley rocks also. Now that we’ve established that fact, hopefully we can also agree that a portfolio that is solely riding on tech in its many forms (say, Facebook stock, maybe some AAPL and GOOG as well and a slug of money for startups you’ve got your eye on, or want to launch yourself) isn’t exactly diversified. You’re still essentially making one massive sector bet. Speaking of hedge funds, private equity, and VC investments, realize that most are losers. A few million bucks just doesn’t buy you access to the good stuff that the premier VC firms invest in. Create a strong bias against the temptation of investing in your friend’s business idea or sports bar.

Build a Smart Advisory Team

Your first investment should be in taking the time to pull together a team of pros to help you make the most of your money. An investment adviser is your go-to pro for how to diversify smartly. Don’t confuse a commission-based stock broker for an acceptable investment advisor. Find someone fee based, who puts your interests first. Adding a CPA to your mix is a must-have. Given the complexity in our tax code, it’s not what you have on paper that matters, but what you get to keep after settling all your tax bills.

And let’s be clear: Every move you make from here on out has rather hefty tax implications. In addition to what the IRS will come calling for, there’s also the not-so-small matter of California’s tax hit as well. It may also be worth sitting down with an estate-planning attorney. It might seem a tad creepy to ponder when you’re just in your 20s or 30s; especially if you’ve yet to start a family, but having a will is a must. It may make sense to address other estate planning areas as well.

The value of a team of advisers isn’t simply to tell you what to do today. It’s what they can provide months and years from now, as new opportunities, new situations and new goals materialize. The pros offer not just their subject expertise but are also a valuable sounding board.

You’ve got friends and family for that? Well, sure. But the very nature of personal relationships can cloud your judgment. Besides, what can make absolute sense for your friend or uncle, doesn’t automatically make sense for you. In addition to advisors, don’t forget to strengthen relationships with people you currently work with who you admire. For those at Facebook, the next year will be the most important networking opportunity of your life. The most successful Silicon Valley Web 2.0 companies are led by people who formed relationships a decade ago. What you do for the next twenty years will likely be determined by your ties with current coworkers.

Keep Your Friends Close

For many new millionaires the big gain from the Facebook IPO is having the freedom to follow dreams. If that means branching off to follow an entrepreneurial itch or spend some time giving back in a distant land, just make sure you stay connected to your friends, family, and valued colleagues. Money can’t buy you treasured relationships, after all.

This article first appeared on Forbes. Image used under Creative Commons by Flickr user Ludovic Toinel.

The following two tabs change content below.
Bill Harris

Bill Harris

Bill Harris is the founder and chairman of Personal Capital. He has spent 25 years building financial technology, notably serving as CEO of Intuit and PayPal. He is the founder of several financial technology companies and has served on the boards of numerous technology firms, such as SuccessFactors, RSA Security, Macromedia, and Answers.com.

Leave a Reply

Your email address will not be published.

Disclaimer. This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.