At this time of year, you commonly see articles that offer long checklists of typical financial advice.
If you’re looking for that, look elsewhere.
We didn’t want to write one of those typical posts. It’s not that the advice is bad, it’s that those changes don’t matter much. You should maximize your IRA contribution, roll over your old 401(k), set goals and a budget for 2013, and donate to your favorite charitable organizations. These suggestions are worthwhile. Put them on your to-do list. Whether you do them now or in a few months doesn’t matter that much.
Meanwhile, our data-driven approach suggests that these three New Year’s Resolutions have the potential to make a real difference in the net worth of our clients in Silicon Valley.
New Year’s Resolutions
1. Ensure your compensation is fair
“Over the long term, managing your career well is much more important than managing your investments well,” wrote our CEO Andy Rachleff in Manage Your Tech Career. The economic returns that follow from good career decisions in the technology industry – especially the decisions that maximize your equity — are much larger than the returns that follow from good investment decisions, by a measure of hundreds of thousands of dollars.
For more career advice, we’ve built out an entire section of our Knowledge Center to help you plan.
2. Adopt a data-driven approach to investing
This fundamental shift will make an enormous difference in your net worth over your lifetime. Letting go of the instincts and biases that damage investment returns is not easy. (In our recent post on RSUs, we talked about the way cognitive dissonance and risk aversion can keep you from a smart decision about how much of your RSUs to sell).
Research shows that the best way to maximize your investment returns is to use a diversified, risk-adjusted portfolio and rebalance consistently. Like the top university endowments, we use six different asset classes; we are adding more in the new year. You can see your recommended asset allocation by answering 10 questions in our risk assessment tool. The information is free through our tool – you don’t have to be a client. We won’t even ask for your email.
Our risk assessment questionnaire is unique because it takes into account normal human biases that affect how accurately people can assess their own risk tolerance.
3. Develop a plan to sell your stock
People who work in Silicon Valley often amass valuable options or stock. Most tech company stocks crash and burn, and a few, which drive the returns for the entire industry, are huge winners. That means your decision about when and how much to sell can make an enormous difference in your portfolio.
Consider our other research into how to make decisions about your company’s stock. We found that among the tech companies that went public between 2002 and 2008, the stocks most likely to do well had consistent or accelerating revenue growth and expanding margins. We also found that public companies that missed at least one of their first two earnings reports were more likely to have stocks that declined in the first three months after an IPO.
We’ve given you tools and information to help you fulfill these three New Year’s Resolutions. If you like what you see, our team of engineers, designers and marketers would love to hear more about the kinds of data that would make a difference to your financial life.