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The Post-IPO Dilemma: Hedging Your Stock

If your company recently went public and your stock price has gone up significantly then you’re probably wondering how you can hedge your position. Unfortunately there’s nothing you can do while you’re still in the 180-day lock-up period. Most lockup agreements have extremely detailed restrictions included, designed to prevent almost any form of market participation with a security.  It’s too long to reproduce anything but a sample here, but it typically begins like this: In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of [names of managing underwriters], […]

Making the Case for Financial Planners

There are a number of value-added services that can improve your financial future.  In the past we have written about the benefits of engaging a tax advisor and an estate planner. In this post we make the case for financial planners. We believe financial planning can make a huge impact on people’s lives. That’s why we have dedicated a number of our blog posts to the topic.  However we are aware that many people could benefit from having an expert to drill down further on the covered concepts.  That’s where a financial planner can really help. In our experience there are five primary areas where a financial planner can add value: Cash Flow & Budgeting Asset & Debt Management Helping […]

WhatsApp: What an Acquisition Means for Employees

The announcement that Facebook is buying WhatsApp for $19 billion generated a lot of interest. The most popular question we received is what does the acquisition mean for the employees financially. IPOs tend to get all the headlines, but in many cases technology companies are acquired. This post will walk through the economics of an acquisition and how it affects all the parties involved. The Terms of the Deal From what I have read, Facebook will acquire WhatsApp for $4 billion in cash and approximately $12 billion worth of Facebook shares. In addition Facebook will grant $3 billion in RSUs to founders and employees that will vest over the next four years. I do not have any special insight into […]

Shining a Light on the Muni Bond Portfolio

Most everyone I have ever met who is in a high tax bracket wants Municipal Bonds to be part of their portfolio. Unfortunately there are a number of misperceptions about Muni Bonds that cause people to make investments in them that are not necessarily in their best interest. This article explores how investors typically build Muni Bonds portfolios and the often-excessive fees they pay for such services. We also show how an ETF-based Muni Bond portfolio might be a superior approach when evaluated from the perspective of its impact on an entire diversified portfolio. Bond Ladders Most people are sold Muni Bond portfolios in what is known as a bond ladder. A ladder consists of a diversified portfolio of bonds […]

When Success & Stock Options Make It Expensive to Leave

They can be an incredibly rewarding and inviting incentive. And among those working in Silicon Valley stock options have become an inextricable part of most job offers. However, actually benefitting from them is not always as easy as you might think. Employees who decide to leave mid-sized companies often awaken to a pretty big and increasingly common surprise — they can’t afford to exercise their options. In our post The 14 Crucial Questions About Stock Options we discuss the questions you need to ask about the stock option component of your offer before you join a new company. We specifically didn’t address how long you see yourself staying with the new employer or when the company is likely to go […]

The 14 Crucial Questions About Stock Options

Ask These 12 Questions About Your Options

In April 2012 I wrote a blog post titled The 12 Crucial Questions About Stock Options. It was meant to be a comprehensive list of option-related questions you need to ask when you receive an offer to join a private company. Based on the outstanding feedback I received from our readers on this and subsequent posts about options, I’m now expanding the original post a bit. I’ve done just a little updating and posed two new questions – hence the slight title change: The 14 Crucial Questions About Stock Options. Next time someone offers you 100,000 options to join their company, don’t get too excited. Over my 30-year career in Silicon Valley, I’ve watched many employees fall into the trap […]

When to Diversify Across Financial Advisors

Last month Wealthfront hosted an event that featured our chief investment officer, Burt Malkiel.  It’s wonderful to listen to Burt, because he discusses the markets with such clarity. Markets go up, and markets go down.  You can’t control them. As an investor, you should instead focus your efforts on the three things you can control that will make a difference:  Diversify your portfolio, minimize fees and minimize taxes. During our Q&A session, one of our clients asked Burt, “Does it make sense to diversify across financial advisors?” Burt’s answer was simple: “There is no real benefit to diversifying advisors if your advisor follows my advice of diversifying your portfolio across index funds that represent a variety of asset classes. Hiring […]

Eight Financial Planning Actions You Should Consider for the New Year

Many of our clients like to use the beginning of a new year to create a plan for their personal finances.  They often ask us what we think are the most important issues to consider.  We believe there are eight critical actions to focus on: Create an emergency fund Pay off high interest debt If you own a home don’t pay off your mortgage If you’ve yet to purchase a home determine how much home you can afford Set up a 529 plan for your kids Evaluate early exercise of your options Create a long-term investment account Avoid Angel Investments Create an emergency fund As you have read in many of our posts, we believe the first thing every young […]

The False Comfort of SIPC Insurance

How Wall Street Brokers See The Facebook IPO

Prospective clients often ask why they should trust Wealthfront to manage more than $500,000 of their assets if SIPC insurance only covers up to that amount. You might be surprised to learn SIPC insurance is quite irrelevant when it comes to asset protection.  In fact it has seldom been used over the 42 years it has been available. Simply put there are exceptionally few cases where investors have lost money due to a brokerage firm going out of business. The Securities Investment Protection Corporation (SIPC) is a nonprofit, membership corporation, funded by its member securities broker-dealers that was created 42 years ago to restore funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. […]

The Unexpected Impact of Commissions

The recent enhancement to our tax loss harvesting service prompted a few readers to privately ask if it’s possible for us to use Dimensional Fund Advisors’ (DFA) mutual funds rather than ETFs to implement our service. Prior to our launch in December 2011, we considered both Vanguard and DFA products as they offer what we believe are the best net of fee returns in the industry. Before we launched our service we met with DFA sales reps and learned that on average DFA funds generate the same return as Vanguard on a net of management fees basis. In other words DFA funds earn a higher gross return, but their much higher management fees end up negating that advantage. We went […]