How Much Investment Risk is Suitable for You?

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.

There is a doctrine in law that investments must be suitable.  This doctrine underlies much of the consumer protection regulation designed to prevent ‘silver-tongued salespeople’ from scamming unsophisticated investors.

You probably have heard or seen ads that promise high returns without investment risk.  Indeed, this is the pipe dream of all investors:  15% per year risk-free return!  When you hear a promise like this, you should see it as a big red flag.  You may not know the gimmick or fine print in the deal, but your common sense says that it is too good to be true—enough said.

OK—you have made a budget and you figure out that you need $x per month to pay for your target standard of living.  Let’s say that you want a $1 million nest egg to fund family-related expenses of $5,000 per month for 30 years.  You realize two things:  (1) that the cost of goods and services tend to go up in the future so you will have to adjust the $5,000 per month upwards to keep pace with inflation; and, (2) that investing means putting some or all of your money at risk.  Ideally, you would like to preserve your target lifestyle by putting your nest-egg in safe one-year CDs at the bank.

You now have arrived at step two in the process of deciding how much investment risk, if any, you need to take [step one was to make a budget].  So the big question is: how much money can you spend without taking any investment risk?  In this example, if you can generate a 30-year income stream with a CD that does not put your nest-egg at risk, you don’t need to own any risky investments.   You may want to own some growth-oriented investments; but you don’t need to own them.

Here is the central point:  You cannot take fifteen pounds out of a ten pound sack.  If a “safe” investment like a CD cannot provide the funds for your critical lifestyle objectives, then that investment is not safe.  It is unsuitable for you.  This may be surprising because most consumer protection laws protect people from speculative or fraudulent investment schemes.  However, in some situations, it is just as damaging to avoid investment risk as it is to take too much 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

Related posts:

Financial Risk and Uncertainty

Do You Need to Avoid Investment Risk or Become an Investor?

What is Investing?

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Amir Hussain

Amir Hussain is the founder of Freemium World, a geek by nature and a professional Blog writer . I love to write about new technology trends, social media, hacking, blogging and much more.

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