Rita Silvan, editor-in-chief of Golden Girl Finance talks to Maili Wong, author of the bestselling book Smart Risk: Invest Like the Wealthy to Achieve a Work-Optional Life. In 2018, Maili was named one of Canada’s Most Powerful Women by WXN. Maili is a portfolio manager with CIBC Woody Gundy based in Vancouver.
GGF: In your book, you give examples of people, including your Mom, taking “smart risks”. What is the difference between a ‘smart risk’ and a ‘dumb risk’?
MW: A ‘smart risk’ is one where the likelihood and magnitude of a good outcome outweighs the likelihood and magnitude of a bad one. For example, taking a smart risk when investing can involve looking for an “asymmetric payoff” where the likelihood of a large profit outweighs the likelihood of a large loss. A ‘dumb risk’ is when there’s a low chance of success and high potential of a significant loss. For example, enabling a friend’s gambling addiction. In investing, taking smart risks means acting in a consistent and disciplined way so risks are more in your favour and there’s a high probability of good results over the long term. I always say, “hold a space” for long-term results.
GGF: What’s the biggest risk you took?
MW: The two biggest risks I ever took were both personal. Staying in New York after the September 11 attacks was a smart risk. Of course, it was distressing to stay but I felt it wasn’t the right time to leave either, as it was my second day on the job. After period of market volatility had just started and there were many layoffs during this period and that opened up possibilities for earnest people like me to step into more responsibility and leadership.
My second smart risk was leaving New York five years later to move back to Vancouver. I had reached some career milestones and had matured and was ready to lead a more purposeful life.
GGF: You give the example of the Nortel meltdown and the risks of herd mentality. How can investors learn to spot herd mentality?
MW: The first clue is when friends or colleagues boast about the investments they’re making and say these are “a sure thing”. Get underneath why you’re attracted to an investment. Is it a case of FOMO (fear of missing out)?
GGF: The Chinese phrase wei chi translates as danger + opportunity. Yet, most of us are risk averse. How can investors deal with volatility?
MW: I think of it as learning to ‘dance’ with volatility. We should expect volatility because it’s a normal part of investing. If you build in the expectation, then you’re not as shocked when it happens. I use my five-point “Smart Risk Road Map” as a guide. It helps take the biases out of the process as it bakes volatility into the plan.
GGF: Most people would say that a ‘work-optional’ life is very desirable. However, there are factors today that make generating sufficient passive income more challenging. How are you advising clients to prepare for retirement?
MW: There always has been and will be uncertainty when planning for retirement. With our clients, we plan for longer and more expensive life spans. I find that oftentimes, people haven’t thought much about how much they will actually need to fund retirement. We may start the process with clients as young as 30 or 40. We then see a 180-degree turn in their behaviour—from carrying huge lines of credit to being more mindful of their spending, but not any less happy. My advice is to plan an independent retirement portfolio and don’t rely on your employer to do it.
GGF: You recommend that investors not focus on the rate of return but on the risk of outliving their capital. How should investors adjust to a potential future of lower-than-historical returns?
MW: You’ve got to assess your lifestyle costs against the long-term returns of different asset classes. Asset class allocation is very important because, historically, equities have outperformed fixed-income over the long term. Of course, there’s always a range of outcomes and we run best- and worst-case scenarios.
GGF: There’s a lot of pessimism in the markets today and talk of slowing global growth. Where do you think we are in the market cycle and what is the best investment approach at this time?
MW: I think we’re late cycle in terms of economic expansion. In fourth quarter of 2018, investors saw a 20% correction from peak to trough in the U.S. equity market (S&P 500 Index). However, just because we’re late cycle doesn’t mean you can’t make money. Statistics have shown that, in Canada, after a market decline of 10% or more, the average annualized return one year later was 15.2%, and over a three-year period it was 11.8%. So, the long-term trend is growth and the trade-off for that is short-term volatility.¹
¹Based on MSCI Canada Index (gross dividends) returns from 1/1970 to 12/2017
GGF: What financial advice would you give to a young woman?
MW: That it’s never too early to start building financial independence. I’m like a warrior to free women from financial fear. Women can feel very vulnerable and they need to gain confidence on how to make good financial decisions.
GGF: What money lessons did you learn from your parents?
MW: To value money and the freedom it can bring. If you can earn it, it gives you the ability to create more choices. Money is an enabler. My kids have three bank accounts: one is money to spend now, another is money to save and spend later, and the last one is money to give to others who may need it more.
GGF: What’s the best/worst piece of investment advice that you’ve received?
MW: The best advice is to always seek clarity, to keep asking questions and to not be afraid of looking stupid. Get to the real truth of what the issue is. Take your time, use your emotional intelligence and embrace your feminine energy.
The worst advice is sometimes from friends with sales pitches, “You gotta buy this…!”
GGF: What was your best investment?
MW: My best decision was choosing whom to marry because it’s a life investment. I met Keith in university and then we had a long-distance relationship while I was working in New York. I am thankful for our relationship, to have someone who is my partner, emotionally and psychologically. I have a high-stress job that’s emotionally draining sometimes, so it’s great to have a partner who supports my growth.
GGF: Maili, thank you for sharing your experiences with us.
MW: My pleasure!
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