Our senior wealth advisor and senior portfolio manager, Maili Wong, once again contributed to a recent Globe and Mail article by addressing cognitive and emotional biases that can lead investors astray.
Read the whole article here. Here’s a preview of what Maili had to say:
From individuals who want to follow hot investment tips to those who fear making the wrong decision, different investor personality types are part of human nature. Yet, acting on some of these traits can have the potential to increase risk and affect long-term financial goals.
For advisors, helping clients become aware of these behaviour patterns or biases early on and working with them to gain perspective and provide education around factors such as diversification, risk, and the benefits of a disciplined approach to investing are key to ensuring they stay on the path to success.
Maili Wong, senior wealth advisor and senior portfolio manager with The Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver, says she often sees both cognitive and emotional investment biases in action – from overconfident investors to those who overvalue holdings for sentimental reasons.
Beyond setting up the investment plan, Ms. Wong says helping individuals understand how their emotional makeup affects their decision-making is a vital part of her role. That includes educating clients on factors in and out of their control and helping them gain perspective on their biases, the way they think and their emotional drivers.
“I often see [investor biases], usually in the beginning of the relationship, and that’s where we try to do a good job of helping clients have awareness of them first – because sometimes they aren’t even aware they have these biases,” she says.
In one situation, Ms. Wong started working with an individual with an overly conservative approach to investing who was seeking better results. She built a balanced portfolio from which he experienced better rates of return within his risk tolerance.
However, a few years into the client’s success, he began demonstrating herding bias as he sought to participate in cryptocurrency investing with his neighbour.
Ms. Wong was able to help the client understand how different this investment was relative to his overall risk tolerance and minimize the amount he invested in it to something he was willing to lose in the casino.
“When he thought about it that way, he changed the amount he was willing to put into it,” she says. “A year later, his friend had lost everything.”
It can be a very strong draw to do what everybody else is doing and not feel left out, she adds.
“We come across that often and try to help our clients understand that their own financial situation may be very different from their friends and that they’ll only hear about the good things,” she says.
If you have any questions about how this relates to you or your investment portfolio and financial plan, please give us a call at 778 655 2410 or email us at thewonggroup@wellington-altus.ca
Sincerely,
Maili Wong, CFA, CFP, FEA
Senior Portfolio Manager & Senior Wealth Advisor
Wellington-Altus Private Wealth Inc.
Board Director
Wellington-Altus Financial Inc.
Maili Wong is a senior portfolio manager and senior wealth advisor at The Wong Group at Wellington-Altus Private Wealth and the Amazon best-selling author of ‘Smart Risk.’ She has over two decades of experience in the finance industry and was named a Top Wealth Advisor and one of the Best in Province in the 2022 rankings produced by The Globe and Mail and SHOOK Research.
