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 financial 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 useful to offer information to help you understand what questions to ask, and what factors that go into money management are important.
Investing is a risky proposition. You send your money into the unknown future with the hope—not the guarantee—that you will earn a return sufficient to reward you adequately for the risk. You do not know whether there will be recessions, wars, international plagues, or other catastrophes. No matter how closely you examine an investment opportunity, you are always faced with the uncertainty of unknown events—who could have predicted the sharp drop in global stock markets following the terrorist attacks of 9/11?
Do you drive a car? If you answer ‘yes,’ consider the worst outcome. At any moment, an unknown and unpredictable set of events could result in serious injury or even death. You cannot predict the time, place, or nature of the event.
If you are risk averse—i.e., you don’t like risk—the ideal strategy is to minimize the probability of encountering events that can cause you maximum harm. In terms of driving a car, the only way to maximize safety is to avoid automobiles as either a driver or passenger. But this would leave you completely home-bound. It would ruin your ability to maintain your desired lifestyle. You make a decision—I will risk catastrophic harm to protect my standard of living. The risk of avoiding risk, in this case, is too high.
What about investing? Investing is about managing risk rather than about avoiding risk. You can take various precautions when driving—don’t speed, wear seat belts, etc. So also, you should take every step to manage risk when investing. There are various ways to do this that we will discuss in future posts. For now, we focus on the risk of trying to avoid investment risk. If a “safe” investment portfolio is unlikely to provide sustainable and sufficient future income, then you will become an “economic” shut-in just as the fearful driver becomes a home-bound shut-in. Once again, we make the following point: you don’t want a “safe” investment portfolio; you want a “suitable” portfolio. Think of the old tuna commercial on TV: “Sorry Charlie, we don’t want tuna with good taste; we want tuna that tastes good.”
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.