Did You Just Come in to a Whole Lot of Money, and, uh, What Next?

In tech, it is possible that you can turn into a (multi-)millionaire overnight. And that can be a really confusing change if you’re accustomed to being a well-paid worker bee with an assumption of working kind of indefinitely.

Now, tech industry mythology would have us believe that overnight riches happen all the time. And it simply doesn’t. A very small percentage of people in tech hit the gold mine in this way. It’s just that we hear allll about them when they do.

But let’s say you are one of the lucky few.

Maybe you work for Uber and just went through their two tender offers.

Or maybe your company just went IPO, the 6-month lock-up period is over, and suddenly all that stock is actually worth something. A lot of things, in fact. (See SNAP for counter-example.)

Or you used to work for a podunk startup and when you left, you exercised your options  (because, hell, who knows?!). Now they’re public and the stock is doing well.

In the tech industry, sudden wealth is usually going to trace back to company stock in one form or another. But however it happens, it is jarring to all of a sudden realize, “Holy crap. I think I’ve got FU money. I think I might be able to never work another day in my life if I so choose.”

I’ve worked with a few clients who’ve gone through this transition. In fact, that transition is often why people seek me out. These lovely, lucky people can be pretty overwhelmed, and understandably so. In an instant, their lives have ventured into The Unknown, and that Unknown can be a lot more complex.

Not everything is more complex, though. And it’s important to keep what should be simple simple, and only spend your money, time, effort, and anxiety on the things that are unavoidably complex.

Investing Is Not That Much More Complex.

The first thing most of us think about when we think about our personal finances is investing. It’s the most talked about part of personal finance. It’s certainly the part that the most businesses and services target.

Not surprisingly, “How do I invest all this money?” can be one of the first questions that occurs to you if you do become an overnight millionaire. I can’t help but envision Bill the Cat when I think about people’s anxiety and confusion about this question.

I’m here to tell you, insist to you, shout it from the internet rooftops, even, that investing is not more complex just because you have a few more 000s than you used to.

I’ve been wondering how to “prove” this opinion of mine. I think the best I can do is to point to large organizations that manage way more money than you have, and who still keep it simple.

  • Nevada’s state pension, at least as of 2016, was managed by a single dude, and pursued a low-cost, passive investment approach. With great success.
  • Vanguard will manage your money for you, for a low 0.3%, and they use a low-cost, passive investment approach, no matter the portfolio size. (Surprise, surprise.) They manage over $100B for their clients.
  • And then there’s Warren Buffett’s famous advice on how to invest money for his wife after he dies: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)”

I know that you can find many more examples out there of people suggesting complicated, maybe even exciting and interesting, ways of investing your money. I’m willing to bet a donut that they’re getting paid, directly or indirectly, to promote said complicated processes and products.

The Dangers of Complexity

Not only is there no need to get complicated, there’s significant danger in doing so. The more complex or arcane your investment choices, the more  likely they are to be:

  • harder to understand. One of the basic rules of investing is “Never invest in something you don’t understand.” Not obeying this rule was a large part of the market and economic implosion of 2007-9.
  • more expensive. Investing is one of the only times when you get what you don’t pay for.
  • less diversified and therefore more risky.
  • less liquid, that is, you can’t get your money out of it easily.
Some Complexity Can Sneak In

The three most common ways I see people’s investing get genuinely and reasonably complex, in the tech world, are:

  • Stock concentration: Possibly a lot, if not most, of your wealth is in company stock. That stock is what got you here (“here” being “wealthy”), but it won’t keep you here. You need to diversify, baby! And figuring out which shares to get rid of and how and when can get tricky. And while you’re still highly concentrated, you might need to tweak the rest of your portfolio to balance that out.
  • Charity: Instead of giving simple cash to the causes you care about, gifting company stock becomes more appropriate. Which shares to gift? Which shares to keep? Which to sell? And when?
  • Taxes: If you’re sloshing around lots of money at a time in your investment portfolio, you could trigger high taxes. Sometimes that’s the right thing to do, to create a better investment portfolio. But it’s always something you need to keep an eye on because the numbers are Big.

What Is More Complex?

Even if investing doesn’t require that much more attention, there are plenty of other things that do. And these are where you should spend your effort, time, and anxiety.

Estate Planning

If you’ve got a lot of money, you’re going to need to think more about how to protect it, and how to protect you and your family because of it. If you get married, you need to think through a pre-nup. If you’ve got kids, you’ll need to think through how to pass the wealth down without corrupting or endangering your kids.

All of this is stuff you should work through with an estate planning attorney, ideally one who will take you through a robust process that helps you think through what you want from your money, what you want for yourself, for your family.

Liability Insurance

Not that this is a particularly complex topic, but the more money you have, the more likely you are to be a target of lawsuits. So, maxing out liability protection and getting an Umbrella Liability Policy should be on your list of To Dos.

Taxes

Mo’ money = mo’ taxes. (Warren Buffet famously commented that his tax rate was lower than his secretary’s. But the absolute dollar amount was surely much higher.) Certain investment choices can significantly affect your taxes, either up or down. You’re really going to want to work closely with a CPA.

Charity

If you are charitably inclined, you now have enough money that you could make significant contributions to causes you care about. And that means you need to be even more thoughtful, and more intentional with your giving than you were before. When you’re “only” giving a few hundred or a few thousand dollars a year, the details matter less.

And once you think through that, then there are tactical considerations: what to donate (cash probably doesn’t make sense anymore; company stock probably does); when to donate (bunch it all into one year? Which year?); and how to donate (directly to charities? To tax-deductible charities or non? To a donor-advised fund or community foundation?).

Personal Relations

Even ignoring the grifters out there, you’re going to have plenty of beloved family members and friends hit you up for money. To pay for school. To help with a down payment. To help launch a new business.

And it’s quite possible you can and want to support these people. But now your money gets wrapped up with your personal relationships, and that can get yucky real quick. Lending someone $100 is a lot different from lending them $10,000 or $100,000.

How a Financial Planner Can Help You.

All those things I listed above? Absolutely. A financial planner needs to be working on you with those issues.

But, to step back a bit from the technical considerations, what you want, no, need in a financial planner is a thinking partner. You’re now in a realm where money doesn’t have to dictate your life. Ideally, you dictate your money. And frankly, that’s just more complicated.

You now need a trusted, competent person who can:

  • Consult with you before you make significant life decisions, like buying a home or quitting work.
  • Protect you from other people’s ideas for your money. Someone to help you think through other people’s ideas for your money. And trust me, once you come into some money, lots of people are going to have lots of ideas for how your money could be theirs. From distasteful salesfolk to friends or family who truly believe in whatever idea they have and just need a little financial help from you to realize it.
  • Connect you and coordinate with other professionals to take care of the important bits, most notably an estate planning attorney and an accountant. But also perhaps a career coach, because I’m guessing your attitude towards your career has shifted mightily.

The way I think about it,

the most important quality you want in a financial planner is the ability to Ask The Right Questions.

Questions that make you truly think about what you value, what you want your life to look like, what you’re afraid of, what you regret, what you want. Because you’re now at a point where the answers to those questions should dictate your life, not money.

Questions like:

  • If you died tomorrow, what would you regret not having finished or done? 
  • Is this (whatever “this” is) something that you truly value? Remember when we discussed [such and such] and you said what you most wanted was [this other thing]. Has that changed?
  • How will you feel if you lend that person that money and they don’t pay it back? Or if you give them the money and then their business fails anyway?
  • For most people, the need to go to work gives their life structure and meaning. But for you, from a money perspective, you no longer need to go to work. What gets you up in the morning? What excites you? What do you like to spend time doing?
  • What social, political, environmental causes do you want to support with either your time or money?
  • What would happen if you took an extended sabbatical to think about it all in a leisurely way?

Asking the Right Question is so important because usually the Right Answer doesn’t lie in the financial planner. Sure, we can explain technical issues, point out things that we’ve learned through experience or training that might apply in your situation. But in your new situation, it’s what’s inside your head and heart that counts much more.

Now, all of these things are helpful no matter where you are on the Net Worth Spectrum. But the stakes get higher the more money you have. And, at a certain level of wealth (colleagues of mine think it’s at about $4M), things are just different. It’s not just quantitatively different anymore; it’s qualitatively different, too.

So if you do happen to be in the right place at the right time, and you do become that overnight millionaire, then your biggest challenge is going to be figuring out what your new world looks like. What you need to worry about. How to protect against those things. Who can help you. Whom to beware of. What’s of core importance to you. Those are the things you need most help with, not which stock or mutual fund you should buy.

Are you overwhelmed by sudden wealth, or are you about to come into it? Reach out to me at meg@flowfp.com or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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