Lawyers are trained to identify and mitigate risk professionally, however when it comes to personal finances, that caution doesn’t always translate effectively. Many high-earning professionals mistakenly apply a “one-size-fits-all” view of risk, when in fact, financial risk is multi-dimensional and varies significantly based on time horizon, liquidity needs and life stage. 

This article explores why understanding risk holistically is crucial to sound financial planning and how lawyers in particular can benefit from a more nuanced approach. 

Rethinking Your Risk Profile

Your attitude to financial risk isn’t just a personality trait, it’s context specific. 

Many tools try to measure this using psychometric tests, which usually involve questions about how you’d react to losing 25% of your investment or doubling your portfolio. These can be useful starting points, but they tend to produce a generalised score that misses the nuance of different financial objectives. 

The better question to ask is: What level of risk makes sense for this specific goal and timeframe? 

Types of Risk Lawyers Commonly Overlook

Risk is more than just market volatility. Consider: 

• Liquidity Risk – Can you access funds quickly when needed? 

• Inflation Risk – Will your cash lose purchasing power over time? 

• Sequencing Risk – Are you vulnerable to losses when you need to withdraw funds soon? 

• Concentration Risk – Are your investments overly reliant on one asset class or geography? 

• Counterparty Risk – How safe are the institutions holding your money? 

Additionally, don’t ignore lifestyle and legal risks. For example, losing earning power due to illness, needing extended leave or not having sufficient protection for dependents. 

Don’t Confuse Professional Risk Tolerance with Personal

As a lawyer, you’re trained to identify legal or reputational risk for clients. This can make you overly conservative in personal investing or in some cases, mistakenly overconfident. Personal risk tolerance is emotional, not procedural. 

Understanding this difference is essential when building a financial plan. A financial planner can help you unpack these two mindsets and guide you to decisions that are aligned with your long-term values, not short-term fears. 

Matching Risk to the Right Financial Vehicle

Ask yourself: 

• What’s the goal of this investment? 

• When will I need to access the funds? 

• What risk makes sense for this specific use case? 

For example: 

• Emergency fund = low risk, high liquidity 

• Property deposit in 12 months = inflation protection + diversified cash alternatives 

• Retirement savings in 20+ years = higher growth-oriented risk 

Don’t chase returns for short-term needs or avoid risk entirely for long-term goals. Align your strategy with your timeline. 

Work With a Professional to Gain Risk Clarity

Managing financial risk doesn’t mean eliminating it, it means being intentional about it. A qualified financial planner can help you: 

• Evaluate your full spectrum of risks, not just investment-related ones 

• Avoid emotional decision-making during market volatility 

• Build a plan tailored to your time horizons, cash flow needs and tax position 

Financial risk is often less about the markets and more about the clarity (or confusion) surrounding your goals. 

FAQs 

Q: What is financial risk and why should I care as a lawyer?
A: Financial risk refers to the potential for losing money or missing out on opportunities due to poor planning, lack of diversification or inadequate protection. For lawyers, who often have irregular cash flow or high workloads, understanding risk is critical to building a stable long-term financial plan. 

Q: How do I know if I’m too risk-averse?
A: If you hold large amounts of cash for long periods, avoid investing entirely or find yourself delaying decisions out of fear, you may be overestimating short-term risk and underestimating long-term erosion from inflation or opportunity cost. 

Q: What’s the best way to manage investment risk?
A: Diversification, long-term thinking, and aligning each investment with a specific goal and timeframe are essential. Working with an adviser can also help reduce the emotional impact of market changes. 

Q: How does sequencing risk affect retirement planning?
A: Sequencing risk occurs when market downturns happen early in your withdrawal phase (e.g. just after retiring), which can significantly reduce the longevity of your portfolio. Managing this means adjusting asset allocation and having buffer funds in place before you begin drawing down. 

Q: Should lawyers get a financial adviser to help with risk management?
A: Yes, especially when your time is limited, your income is irregular, or your financial situation is complex. Advisers help translate general investment risk into personal context and ensure you’re protected against more than just market volatility. 

Need help understanding your financial risks or want to design a plan that reflects your career and lifestyle? Book a 15-minute no-obligation call today, and we’ll help unpack your full financial picture. 

Adrian Johnson