I am a bit of a risk-taker, especially with the extracurricular activities I’ve chosen to pursue in life. This has taught me so many valuable lessons on what risk actually is, and how to measure and minimize it without sacrificing too much of the rewards that come with the satisfaction of conquering something new and exciting.
I started out at an early age with competitive taekwondo, and was knocked out cold in my first tournament, but I made darn sure it never happened again. I then got into big-mountain skiing and downhill mountain biking, and quickly learned the importance of weighing my actual ability against the probability of serious injury during some big crashes. Now, I’m moving on to enduro dirt biking and, at my age, taking many factors such as terrain, speed and safety equipment into due consideration.
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The point is that risk isn’t something that can be taught in a classroom, unless the classroom happens to be out there in the real world. It’s no different than trading theoretical paper portfolios, or even for-fun-only gambling games online. The only way you learn about risk is from actual pain, whether it’s bodily injury or losing money. It is the risk of permanently losing something important to you.
In today’s environment, we have a handful of economics professors advising the federal government about putting a heavier tax burden on the risk-takers in this country. They are touting fairness and “our fair share” when all they have to do to get the exact same tax benefits that they’re criticizing is to leave the comfort of their tenured positions and golden defined-contribution pension plans and, yes, take on that four-letter word — risk.
This means putting their retirement and family’s life savings at risk in order to start an innovative and disruptive business. Or taking on a large amount of debt and then working the many hours that a family doctor does without the guarantees of a retirement pension indexed to inflation.
With these academics and our federal government now going after our few remaining risk-takers, ask yourself how this will help secure more doctors to meet the needs of our rapidly growing population base and more entrepreneurs, who are the rocket fuel for economic per-capita growth.
The bottom line is that there will be some serious and profound long-term implications of implementing policies that don’t consider or factor in risk-taking. As an investment manager, if I ran portfolios this way, why would I aim for capital growth and take on the risk of permanent loss if the same return on an after-tax basis is being offered up by income opportunities that are fully backstopped by a company’s assets?
This is exactly why every major country in the Organization for Economic Co-operation and Development (OECD) treats the taxation of income, dividends and capital gains differently. They want to encourage risk-taking and the deployment of capital to grow their respective economies. And yet we’re arrogant enough to go down a completely different path?
Our philosophy and approach to investing is to meet the financial goals and objectives of each individual client and to minimize the risk as much as possible. This means having a thorough understanding of things such as the time value of money, liquidity, intrinsic value and potential impact of macro and micro events.
From a government perspective, it really isn’t that much different. Do we know what our country’s financial goals and objectives are? What kind of growth opportunities do we need to provide in order to stop the net outflow of foreign direct investment and to start attracting capital once again?
How do we support the risk-takers within our own country and encourage them to continue deploying their money into the economy and doing the same with our wealthy, who are currently motivated to invest elsewhere, such as the United States, where there are arguably much greater opportunities?
Let’s start by asking these questions before going all in on policies that will increase the risk of a permanent loss of capital and not decrease it. That’s a situation that I, and I’m sure the millions of other Canadians who don’t have a government-backstopped safety net, would prefer not to get into.
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