Lawyers are well-versed in logic, analysis and precision skills that often serve them well professionally. But when it comes to investing, intelligence alone doesn’t determine success. Understanding your investor type, how you handle risk, make decisions and engage with your financial plan, is essential to building long-term wealth while managing your emotional responses and strategic blind spots. 

This article helps legal professionals identify their investment identity and understand why it matters. 

Why Knowing Your Investor Type Matters

You may be fluent in NPVs, IRRs and risk profiles. But without aligning your personality and financial goals with your investment strategy, you risk: 

• Taking on too much risk based on overconfidence 

• Avoiding opportunities due to excessive caution 

• Misjudging your reaction to market volatility 

• Choosing complex strategies that don’t align with your time or lifestyle 

Investor self-awareness helps ensure that your portfolio fits your life, not just your intellect. 

Active vs Passive Investing: Which One Fits?

At the core of investor identity is the active vs passive debate: 

• Active Investor: Tries to outperform the market through individual asset selection, timing and frequent portfolio management. Requires deep research, quick decision-making and constant monitoring. 

• Passive Investor: Seeks to match the market by holding low-cost index funds or ETFs for the long term. Emphasizes simplicity, cost-efficiency and staying the course. 

Why Passive Often Wins

Evidence suggests that passive investing outperforms active management over the long run for most individuals. Case in point: Warren Buffett famously bet $1 million that a low-cost index fund would outperform a group of hedge funds over a decade. He won. 

Trying to “beat the market” consistently is not only difficult, but it often leads to worse returns after fees and taxes. For most lawyers, especially those with limited time and already complex professional lives, passive investing delivers adequate returns with fewer pitfalls. 

The Case for Intelligent Passive Investing

Passive investing isn’t just “set it and forget it.” It still requires: 

• Strategic asset allocation aligned to your life goals 

• Regular rebalancing to stay on track 

• Consideration of tax implications and time horizon 

• A plan that adjusts as your career and income evolve 

Working with a financial planner can help ensure your “passive” approach is still proactive in its structure, design and oversight. 

Enjoy Investing? There’s Still Room to Play

If you enjoy monitoring markets or researching opportunities, carve out a small portion of your portfolio, say 5 to 10%, as a “satellite” allocation for active investing. This gives you the freedom to explore ideas without compromising the integrity of your core plan. 

Let your core portfolio work quietly and efficiently in the background while you reserve the rest for experimentation, should you choose to. 

FAQs 

Q: Why does it matter whether I’m an active or passive investor?
A: Understanding your investor identity helps align your financial behaviour with your emotional tolerance, time constraints and long-term objectives. Misalignment can lead to poor decisions, especially during periods of market stress. 

Q: Isn’t active investing more profitable?
A: In theory, it can be, but very few people consistently outperform the market after accounting for fees, taxes and risk. Studies show passive investors tend to do better over time with less stress and effort. 

Q: Can I mix both active and passive strategies?
A: Yes. Many investors use a core-satellite strategy where majority of the portfolio is passively managed while a small portion is allocated for active ideas or high-conviction themes. 

Q: Do I need a financial adviser if I invest passively?
A: Yes. A professional helps you construct a portfolio that aligns with your goals, rebalances it over time, addresses tax efficiency and holds you accountable to long-term thinking, especially during volatility. 

Q: What’s the biggest risk of not knowing what type of investor I am?
A: You may either take too much risk, expecting unrealistic returns or be overly cautious and miss out on compound growth. Knowing your type allows for balanced, personalised decision-making. 

Not sure what type of investor you are or how to build a strategy around your personality and goals? Book a no-obligation 15-minute call to assess your investor profile and align it with a clear, actionable plan. 

Adrian Johnson