There’s No Place Like Home?
“The only investors who shouldn’t diversify
are those who are right 100% of the time.”
– John Templeton
I do appreciate that for most investors one of our behavioural “ticks” is to invest primarily in what we are familiar with. As a result, time and time again, I come across portfolios that are significantly over invested in Canadian companies. RBC Global Asset Management reported that as of May, 2019, while Canada represented only 3.1% of the MSCI All Country World Index, Canadians held a whopping 59% of their portfolio in domestic stocks. Even more challenging is the fact that our market is incredibly under-diversified with over 70% of the Toronto Composite Index made up of “rocks, trees, and financials” … otherwise known as natural resource companies and banks. (Source: https://www.msci.com/acwi)
This state of affairs is sadly reflected in the opportunity cost that shows up in the chart from the Visual Capitalist shown below. It goes into more detail through this excellent graphic “Charting the World’s Major Stock Markets on the Same Scale (1990-2019)”. As you can see, since 2011, the U.S. has significantly outperformed the Canadian market
Instead of clicking one’s heels and whispering to oneself, “There’s no place like home” may I suggest that, at least when it comes to one’s portfolio, “home” is not necessarily the best option when it comes to the diversification of your portfolio.