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.
What does it mean to invest?
Although there are a variety of possible answers—e.g., “risk money to make money”— the best answer is that investing means taking money that you do not wish to spend NOW and sending it into the FUTURE so that it is available for you to spend at a later date. Investing is like stepping into a time machine so that you can meet yourself—and your money— in the future.
You could spend all of your money now but that would be foolish because there would be nothing for you and your family tomorrow. So you are faced with a decision: how much to spend today versus how much to send ahead in time for your future use.
Let’s say that you wanted to send your money across a distance—perhaps New York to Los Angeles—instead of across time. You have a variety of shipping choices:
- Truck
- Railroad
- Airplane
A variety of costs and risks confront you as you make your choice. Shipping by truck may be cheap; but, it is slow. There is little risk because if there is a truck accident, chances are that your package will survive intact. At the other extreme, shipping by air is fast but expensive and, if a crash occurs, your package may be obliterated. Maybe you decide to divide your money into three packages and ship each one differently. It’s up to you.
You confront a similar set of options regarding how to send your money across time. Here are some choices:
- Bank Account (Certificate of Deposit)
- Bonds
- Stocks
Bank accounts don’t earn much money but they are relatively safe; stocks gain or lose money relatively quickly but, in the long run, they offer better return expectations. Bonds are the railroads of the financial industry—they are generally riskier than insured CDs but not as risky as stocks.
What is investment risk? What amount of risk do you need to take? In the next several posts we will talk about risk; types of risk; deciding how much risk, if any, you need to take; and, most importantly, the risk of trying to avoid risk.
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.
Related posts:
Do You Need to Avoid Investment Risk or Become an Investor?
How Much Investment Risk is Suitable for You?
Financial Risk and Uncertainty