Lawyers are clever and your intelligence sets you apart from other professionals. This can be a blessing and a curse. On the one hand, you can quickly get to grips with NPVs and IRRs and the risk profiles of assets in your portfolio. On the other hand, you may overlook influences such as your personality type, investment goals, and ability to weather losses when determining what investments are right for you.

Without exploring this correctly, you could end up carrying excess risk or missing opportunities to grow and protect your wealth.

Do you know what type of investor you are?

Active vs passive investing

Even if your sole financial asset, other than the cash in your bank account, is your pension, you are explicitly or implicitly choosing between being an active or passive investor.

An active investor is one who regularly makes investment decisions and commits time and resources to researching and executing transactions in various assets, because she believes she can consistently beat the market.

A passive investor, by contrast, is generally comfortable with the average return of the market and will simply buy and hold. The proliferation of index funds and exchange traded funds makes it very easy, and cheap, for all levels and types of market participants to passively invest.

While the debate still rages about the case for active fund management and active investing, for those who think they can consistently beat the market, we have a stark warning: you can’t. It’s too risky, too complicated, and too much trouble to try and select winning investments all of the time.

Take a wise old billionaire’s advice. Warren Buffet won a $1 million bet that he could do better than a portfolio of hedge funds just by staying put in a boring, low-cost stock index fund (his winnings went to charity) (Entrepreneur, Warren Buffett Won a $1 Million Bet, and It’s Helping a Good Cause, Jan 2 2018). Research proves that simply riding the tide of the stock market achieves better returns than proactively deciding when to jump in and out most of the time.

Passive returns are usually sufficient

Some people enjoy managing their portfolio. If that’s you, then retain a portion of your funds, track those price movements, and enjoy trying to ‘win the game.’ If that’s not you, then be assured that as a partner in a law firm, making market returns over the long term should compound your portfolio to significantly more than is needed to meet your financial goals.

Seek good advice. Passive investing is not a case of constructing a portfolio and letting things take care of themselves. Intelligent passive investing requires proper discipline, decades of experience, and regular review to ensure that the portfolio is performing to your individual needs.

Adrian Johnson