Stock options should be treated like any other compensation, not like an investment portfolio, warns a partner in the law firm of Hemenway & Barnes in Boston.

“Many entrepreneurs are so passionate about what they do that they forget to look at their overall financial picture,” says Brian Broderick, a partner in the firm, which specializes in handling the financial affairs of successful entrepreneurs and other high-net-worth individuals. “They receive stock options in their company and they treat it like a portfolio.”

Instead, they should treat options like any other form of compensation and diversify their holdings to protect the assets, he says. Many young entrepreneurs faced the same situations in the late 1990s and lost vast sums of wealth because they did not reinvest what was given to them as options, and then the companies failed and their options were worthless.

Entrepreneurs should engage financial advisors who can help them diversify their company options as soon as they are received, even before a company goes public, Broderick says.

“Options owners believe their options will continue to grow until their exit” from the company, Broderick says, but that is not guaranteed. “Options holders should regularly exercise and sell a portion of vested options when the market conditions are favorable.”

Income and other taxes also should be considered when deciding what to do with options, says the law partner. Moving assets into a trust before they are appreciated limits the income tax and preserves the money for future generations.