Facebook – Should You ‘Like’ It?

Do you Facebook?

I remember just a couple years ago when I thought Facebook was only for teenagers and college students. A way for them to plan events, share pictures and complain about the unfair treatment that they were receiving from parents or school with friends online.

And then, one day, I enrolled. In fact, every family I know has enrolled. My mom even has over 100 friends online. Facebook is more than just a fad for teenagers.

I recognize Facebook, and social media in general, as an amazing cultural shift which is changing the way we communicate not just in the United States, but globally. To recognize Facebook’s potential, you only have to look back about 20 years to see how much cell phones, the Internet and email have changed our everyday lives.

Consider some of these numbers.

• Facebook grew from 350 million users to over 800 million users last year alone (2010-2011).
• If Facebook were its own country, it would be the 3^rd largest in the world.
• Over 87% of all Americans younger than 30 are current users of Facebook.
• Maybe more surprising is that 28% of families 70 years or older currently have accounts.  Grandparents are increasingly sharing and viewing pictures with family and friends across the country.
• The fastest growing user base today of Facebook is women between the ages of 55 and 65.

It seems as though everyone is using Facebook, and it makes you wonder how in the world we ever planned a high school reunion or shared our vacation photos prior to FACEBOOK!!

Facebook and Wall Street

Last week, Facebook set Wall Street abuzz when they announced plans to rise up to 10 Billion (that’s with a capital B) dollars this spring through an initial public offering. Wow! With all this hype, you might just be thinking that this is probably a good investment. My answer: proceed with caution.

Clients of ours, and hopefully most of the readers of this blog, recognize and appreciate Secured Retirement Advisors’ “protect first, grow second” approach to investing and will choose to stay on the sidelines during those early weeks following Facebook’s first public appearance on the stock market. While the potential rewards of investing in this type of offering are big, so are the risks. Unless you are a large mutual fund, hedge fund, current investor or very lucky individual, your chances of getting in before the shares start trading are slim to none - and slim just left. So for most everyone else out there (myself included) the only resort will be to buy inflated shares of stock from these luckier investors. Stocks that initially trade following an IPO can be extremely volatile, so you are definitely taking more risk than our average client - who is either transitioning to or already in their retirement years - is comfortable taking.

Successful investing requires that you assess both profit potential and risks prior to allocating hard-earned dollars toward any opportunity. Know first what your downside potential for loss is prior to writing a check. With any initial public offering, especially one like Facebook which has so much hype behind it, assessing risk is extremely difficult. For those who chose to speculate on the early days of trading, I’m sure there will be opportunities for profits, but for my money, I will choose to focus on the potential risks first. My prudent approach has done well for my clients at Secured Retirement Advisors, and I will choose to wait before I decide to click ‘Like’ on purchasing Facebook stock.