OK, You're Rich. Now What?
      Author:ROBERT FRANK     Source: http://cn.wsj.com     Release Time:6/3/2011 9:05:39 AM     View Times:10659
Silicon Valley has a new case of 'sudden wealth syndrome.'

This week's stratospheric public offering of LinkedIn Corp., the social-networking company whose shares more than doubled on Thursday, turned company founder Reid Hoffman into the nation's latest tech billionaire, with a stake valued at more than $1.7 billion. CEO Jeffrey Weiner, who joined the company in 2009, is now worth more than $200 million.

With more IPOs in the offing, from Zynga Inc. to Groupon Inc. to Facebook, the social-media craze has become America's latest supernova of wealth creation, launching a new generation of millionaires and recalling the instant riches of the 1990s dot-com explosion. Terms like sudden wealth syndrome and 'affluenza,' which had largely vanished from the offices of Palo Alto, Calif., and the cocktail parties of nearby Atherton, are back.

Yet when it comes to investing and spending their newfound fortunes, Silicon Valley's newly rich are likely chart a different course from their predecessors. In the wake of the dot-com bust in 2001, which left many dot-com millionaires with massive mortgages and worthless stock, the new tech magnates are likely to take a more cautious approach to their money. Advisers say the new class of dot-commers is likely to sell as much of their holdings as possible and protect their cash.

'We've been through such a number of watershed events over the past decade, and those lessons are writ so large,' says Chris Sheldon, director of investment strategies at BNY Mellon Wealth Management, which has a number of wealthy tech clients. ' I think people seem to have a better chance this time around of starting out the right way.'

Of course, some of the suddenly wealthy of 2011 may end up making the same mistakes as the last group. Tech entrepreneurs often pursue their corporate visions with missionary zeal and are loath to sell company shares, even if it is financially prudent. And loading up on social-media stocks has proved highly lucractive for investors like Russian billionaire Uri Milner, who invested with Facebook, Groupon and Zynga, and recently bought a $100 million house in Los Altos Hills, Calif.

Yet Silicon Valley's top wealth managers are telling their newly rich clients to cash out as much as possible. If the old message was 'risk and returns,' the new message is 'protect and preserve.'

'The folks today don't have the sense that the world will keep getting better and everyone will keep getting richer,' says Keith Whitaker, a wealth counselor and president of Wise Counsel Research in Boston, which studies wealth. 'There's a desire to be liquid, and less trust in financial markets and less of an appetite for risk.'

Here are a few of the tips advisers are giving to the Valley's freshly minted millionaires and billionaires.

? If it's not cash, don't spend it. Mr. Hoffman may be a paper billionaire, but he sold only about $5 million of stock in the IPO. He is still rich, of course. But advisers are telling the instantly wealthy to limit their lifestyles to their cash rather than their paper wealth, which can vanish overnight.

While LinkedIn, Groupon and the other companies have enjoyed steadily higher valuations in the private market, they are likely to endure a more volatile ride in the public markets.

'There's a temptation to start spending the money right away,' Mr. Sheldon says. 'But the lesson from recent history is that your stock doesn't always have the same value in six months that it does today.'

? Hedge, pledge and sell. Advisers recommend that founders and executives sell large chunks of their stock so they don't have so much of their wealth tied up in one investment─especially one as volatile as a tech stock. Katherine Ellis Nixon, a regional chief investment officer at Northern Trust Corp., says she advises clients to create a 'barbell,' with their company stock on one end and ultrasafe investments (like short-term Treasurys) on the other.

Many times company chiefs are subject to lockups that prevent them from bailing out of all their shares. Mr. Hoffman, for instance, has a six-month lockup. Advisers are telling those clients to create 'stock collars,' which are options trades that limit the downside and upside of a stock movement.

They also are recommending hedges using options that would involve, for instance, betting on a decline in broader tech stocks to offset an executive's ownership in his own company.

The goal, Ms. Nixon says, is to 'offset the high volatility and concentration of their company' shares.

? Give it away. The government is offering attractive terms for gifts, raising the lifetime gift-tax exemption to $10 million from $5 million for married couples. Advisers also say today's newly rich─often in their 20s and 30s─are highly philanthropic. Many of them (like Facebook's Mark Zuckerberg) are giving away millions already.

? Stop and listen. Wealth psychologists say instant wealth can be highly disorienting.

'When you suddenly cross that boundary like these guys just did, it's like going to another country,' says Lee Hausner, a psychologist who works with many wealthy families and entrepreneurs in California. 'It's like getting dropped in a rural village somewhere. You have to stop and do nothing. Just get the lay of the land and try to learn.'

She tells clients to initially avoid wealth managers and park their money in cash until they can get educated in the peculiar customs and rules of investing, spending and giving away large wealth.

'You need to start with the big questions, like what are your life goals and family goals before you start picking an investment strategy,' Ms. Hausner says. 'You can't just run to someone with a vested interest in selling you something.'

Home  |  Talents Registry  |  Privacy  |  Statement  |   Company Recruitment  |  Contact Us
Disclaimer: This website is only a communication platform between companies and applicants. Not any service relations is involved between any companies and applicants
Copyright 2011-2024 Job852.com. All rights reserved.