Many Canadians believe they’re safer investing in their own backyard, but their home bias is putting them at risk. Here’s why.
Canada represents a little more than three per cent of the developed global equity market but, on average, Canadian investors typically allocate 60 per cent of their equity investments to their home market – unaware that Canadian equities can be volatile.
Overall, Canada is a strong, stable economy and its natural resources sector adds broad exposure to global economic growth. The volatility comes from a market that is about 70 per cent exposed to just two industries: financial services and natural resources.
Here’s how to avoid putting all your eggs in one basket and diversify your portfolio:
- Diversify by sector and region for a well-balanced portfolio. Many Canadians see the value in diversifying in a range of goods and service stocks but tend to play within the confines of the Canadian market. Investing in Canadian Index Exchange Traded Funds (ETFs), while diversified in the Canadian market, still will not provide optimal results.
- Invest in stocks in the EAFE Index: Japan, UK, Western Europe and Australia. By investing in just one EAFE stock you can add diversification to a portfolio. The size and quality of the companies in the EAFE Index are on par with the S&P 500 in North America.
- Invest in global stocks like Nestle and Shell – big brands selling products and services in large growing markets like China and India – for measured exposure to developing economies.
- Construct your portfolio with Canadian equities, bolstered by global assets. A good equity mix is one third Canadian, one third US and one third International.
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Since 2000, Shaunessy Investment Counsel (SIC) has successfully followed one principal investment strategy: a global, balanced portfolio of stocks, bonds and alternative investments, comprised exclusively of ETFs.
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