This is a guest post by Patrick Collins of Schultz Collins Lawson Chambers, Inc., the firm we hired to advise us on how to handle Kazan Law’s pension funds, our charitable foundation’s funds, and that some of our partners hired to advise them on personal money management.
The decision on what lawyer to hire is the most important decision almost every family will ever make because so much potential money is at stake. If litigation goes well, the next decision is what to do with the proceeds so that the money is there and stays there to meet the family’s needs for many years to come. We thought it would be informative to offer information to help you understand what questions to ask, and what factors that go into money management are important.
Financial Risk and Uncertainty
Financial risk and uncertainty are both important aspects of investing. As a general proposition, let’s assume that “uncertainty” is a condition that makes individuals more scared of taking risk. When a child is uncertain about how the world works, he or she might be very concerned about what type of monster hides under the bed at night. Getting out of bed when the lights are turned off is viewed as a risky undertaking. As an adult with more experience and knowledge, such worries seem comical—however, to a child they are very real.
Fear, however, is no laughing matter. Uncertainty drives both adults and children to protect themselves by avoiding situations with which they are unfamiliar or uncomfortable. Investing often involves a fear of the unknown.
Lack of familiarity with financial concepts and technical jargon can make investing seem very risky. The less a person knows, the easier it is to imagine bad outcomes, and the more attractive a safe alternative like a bank account may appear. Equally worrisome, the less you know about a subject, the more reliant you become on trust. Can you trust the auto mechanic not to overcharge for repairs; can you trust your doctor to give you a correct diagnosis; can you trust a financial advisor not to recommend investments that only serve his or her self interest?
An American philosopher remarked that the only thing more difficult than making money was keeping it. News reports often tell the sad story of lotto winners who, just a few years later, are flat broke. Undoubtedly, these folks would have been better served by putting all their money into a passbook savings account, developing a budget for reasonable living expenses, and sticking to it. The moral of their sad stories seems to be that everything should be put into the bank—don’t take any risk.
When is risk avoidance the best course of action? Is there any course of action that is truly risk free? Is there a reason to put money “at risk” in an investment program? If yes, how much should be put at risk?
These are topics for future consideration.
The posts provided by Schultz Collins Lawson Chambers, Inc. [SCLC] convey information on basic investment concepts. They are intended to facilitate prudent investment decision making. They should not, however, be the sole factor in making investment decisions; and, they are not intended to act as advice or recommendations for any specific investor. SCLC acts as Independent Investment Counsel and is a Registered Investment Advisor. It does not provide legal, accounting or tax advice; and the opinions expressed in the posts are solely those of SCLC. You can find additional information about SCLC, their personnel, and client services at www.schultzcollins.com.
Do You Need to Avoid Investment Risk or Become an Investor?
How Much Investment Risk is Suitable for You?
What is Investing?