Here we continue our series for attorneys and how they can overcome their unique financial challenges. Read about Challenge 1: Time is NOT on an attorney's side. Read about Challenge 2: Attorneys enjoy an (over)abundance of opportunities.
Challenge 3: Not every risk is worth avoiding.
If there’s one thing the legal profession teaches its practitioners, it’s how to minimize the risks that a case may not go their way. But this specialized expertise in risk management translates imperfectly into managing their investments, where risk plays a different role.
In investing, a measure of risk is not only desirable but essential when accumulating wealth to fund long-term goals such as retirement. On the flip side, when saving for short-term goals, such as putting a down-payment on a house, market risk typically plays second fiddle to ensuring stable preservation of the assets. This is why most portfolios are built with an appropriate mix of stocks (for wealth generation) and bonds (for wealth preservation).
At the same time, with attorneys’ wide income fluctuations, new money often occurs in fits and starts. This can call for more frequent attention to proper portfolio maintenance through disciplined asset allocation and periodic rebalancing. To provide an analogy, it’s like knowing how to adeptly steer a boat toward its destination in uncommonly choppy waters.
The Game Plan to Manage Your Risk:
An attorney’s expertise in managing professional risks often runs counter to the kinds of risk management required to manage efficient investment portfolios. With the disconnect, attorney’s “do it yourself” portfolios are often full of holdings that are needlessly risky, needlessly expensive, and unsuitable for the their actual short and long-term needs. A professional investment manager can help attorneys discover and make best use of the science of investing, including how to appropriately harness the risks and expected rewards inherent to our capital markets.