PhotoIf you're determined to invest your last dollar in Facebook when it goes public Friday, here's one of several thousand reasons you shouldn't: the social media site is losing the world's fourth-biggest advertiser, General Motors.

GM said yesterday it will stop advertising on Facebook, saying the ads are ineffective. The automaker has been spending about $10 million annually on Facebook ads but, according to published reports, has determined it's not getting its money's worth because the ads don't perform well.

The company says it will continue to spend about $30 million on its unpaid Facebook marketing efforts, which should be just delightful news to Facebook.

GM spent about $3.9 billion globally on advertising in 2010, according to Advertising Age, a trade publication. That makes it the fourth largest advertiser in the world, trailing Procter & Gamble, Unilever and L'Oréal. 

Russian roulette

Now, as for the other reasons you shouldn't invest your retirement or college savings in Facebook.  And hey, don't think this is just our personal opinion. We were standing around talking to a car salesman in North Hollywood the other day and he said he used to own a chain of furniture stores before he invested all his money with a guy named Bernie Madoff, so we have done our homework.

  • First and most important, it's never wise -- or even sane -- to put all your eggs in one basket. An investment portfolio should include stocks and bonds and several types of each: dividend-paying stocks, long-term growth stocks, emerging-market stocks and so forth. On the bond side, the mix should include taxable and tax-free bonds. By diversifying, you protect yourself against volatility that hits one sector harder than the rest. Maybe in time you stay even with inflation or eke out a percent or two of growth.
     
  • It's almost impossible for small investors to get in on a much-hyped IPO. Institutional investors, investment banks and the like scoop up everything that's available. Buying in a secondary market -- like from the company you never heard of that sends you an email -- is an easy way to lose your money and get your name added to a sucker's list that will attract more con artists to your door. Sorry to be blunt, but it's true.
     
  • It's likely Facebook's shares will almost certainly lose value immediately after the IPO. This is normal. Insiders and big interests scoop up all the available shares on the first day, the price skyrockets. Then they unload them and on the second day, the price plummets.  Eventually, it may come back up.  It may even double, triple and quadruple. Then again, it may not. It's impossible to predict, especially since Facebook essentially has no earnings to speak of and the entire enterprise is built on hope and hot air.
If this disappoints you, don't feel bad.  Anyone who invests in anything is disappointed much of the time.  Even if you're successful, you're soon disappointed to see how much you wind up paying in capital gains tax, despite all the talk about the greedy 1% (which, when you look at proposed taxing policies, often turns out to be more like the dual-income middle-class).
 
The way to invest is slowly, steadily and calmly.  Work out a strategy with a trusted advisor, one whose last name is not Madoff and who is a Certified Financial Planner or Personal Financial Specialist Smart Money has more information on finding the right financial advisor.
 
Don't take this the wrong way.  We're all for investing over your working lifetime. Just don't expect to get rich on a single IPO. You would most likely do just as well at Vegas and maybe get a free drink or two in the process.

Share your Comments