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IPO...Uh oh!



Cart before Horse: Assuming IPOs will create Instant Millionaires

Every time I turn around I hear about the bumper crop of millionaires coming down the pipeline in San Francisco. Realtors are salivating at the potential increase in home sales. Mortgage brokers are in heat. Financial Advisors are popping bottles.


This is Cart-Before-Horsing at it's finest. While IPO's certainly create a significant amount of wealth, today's 'startups' are hardly nascent babes. Most of this year's tech IPO candidates have been in business for 8-10 years and have yet to make a profit.


Early stage investors and VCs get their money first and after that the public market has to wish, hope and pray that the company garners enough consumer confidence to push the valuation beyond the stratospheric figures upon which they based their opening price.


Employees of said startups are in a good position to realize a significant gain if the company falls in favor of analysts. But the 180 days lock-up period assigned to holders of RSUs means you must wait at least six months for the market to indicate sentiment and trading to settle down.


Regardless of how bullish (or bearish) the market is on an IPO, I strongly encourage employees diversify their position whenever a window opens. I believe everyone should be well-diversified to protect against volatility and ensure the most consistent gains over time.

Bottom line: You shouldn't have more than 10% of your investable assets in any one company stock.


1. Figure out the balance of all your investable assets (Retirement+Savings+Brokerage+RSUs)

2. Calculate how much of your assets are directly invested in one public company. (Pro tip: use a calculator)

3. Sell off your RSUs during quarterly-selling windows (wait a year for long-term tax treatment if you prefer) and reinvest in a diversified asset allocation of ETFs until you can bring your concentration down to 10%.


If I sound like Chicken Little - Keep in mind, if your job and the majority of your net worth is locked up in a single company, you're extremely vulnerable to market volatility. If your company takes a turn for the worse, you could be laid off and your stock could crater all at the same time.


Let's not sit by and watch this happen. Create a financial plan that addresses your goals and protects your hard earned assets.

Questions?

sarah@simplifyfinancial.com

Financial District:

115 Sansome St

Suite #200

San Francisco, CA 94104

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Simplify Financial Planning , LLC is a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.

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