{"id":383,"date":"2015-12-14T07:57:25","date_gmt":"2015-12-14T15:57:25","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=383"},"modified":"2015-12-15T10:37:46","modified_gmt":"2015-12-15T18:37:46","slug":"diversification-for-canadian-investors-dont-wait","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/diversification-for-canadian-investors-dont-wait\/","title":{"rendered":"Diversification for Canadian investors – don’t wait"},"content":{"rendered":"

\"Sucker2\"<\/a><\/p>\n

Canadians exhibit far too much home bias with their investments – while some home bias is normal and maybe useful\u00a0if it helps reduce psychological barriers to investing at all, it can be particularly dangerous in Canada not only because of economic and stock market industry concentration but also the high proportion of total market capitalization represented by relatively few very large companies. \u00a0 This is a danger for investors that hold the entire Canadian index, to speak nothing of the portfolios we’ve seen that contain concentrated positions\u00a0in a few\u00a0Canadian stocks. \u00a0Home bias has really hurt Canadians recently but it’s never too late to diversify!<\/p>\n

One of the cornerstones of a sensible, evidence-based investment strategy is diversification. Dimensional Fund Advisors (www.dimensional.com), who manage some of the best funds for investors who want to take a sensible, evidence based approach (full disclosure: at Chalten we use Dimensional Funds in some of our client portfolios<\/em>) talk about 4 principal benefits of diversification:<\/p>\n

I.Diversification Helps You Capture What Global Markets Offer<\/p>\n

II.Diversification Reduces Risks That Have No Expected Return<\/p>\n

III.Diversification Smooths Out Some of the Bumps<\/p>\n

IV.Diversification Helps Take the Guesswork out of Investing<\/p>\n

Now of course they also point out that diversification means you may miss out on some fantastic opportunities arising from more concentrated bets on individual stocks or by making market timing bets. \u00a0However this is extremely difficult (easy with\u00a0hindsight, right!) \u00a0For example, between 1994 and 2014 all stocks globally earned a compound annual return of 7.5%. \u00a0If you missed the top 10% of performers each year your annual return would drop to 3.2%. \u00a0If you missed the top 25% of performers each year your annual return would drop to -6%! (thanks again Dimensional for the data<\/em>) It doesn’t pay to try to win because the cost of loss in terms of fees and risk isn’t worth it. \u00a07.5% market return is great, embrace it with diversification!<\/p>\n

This is a message we’re really trying to drive home to Canadians. \u00a0The Canadian market has underperformed recently mainly due to the weakening of the Canadian dollar and poor returns in certain sectors. \u00a0Of course now we are getting questions about whether perhaps it’s too late to try to diversify, or whether\u00a0at this point one\u00a0should stick around for the rebound and therefore\u00a0stay concentrated\u00a0in Canada. The evidence suggests that kind of effort to chase market returns is a sucker’s game. Diversify now and look forward to a better long term investment experience.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Canadians exhibit far too much home bias with their investments – while some home bias is normal and maybe useful\u00a0if it helps reduce psychological barriers to investing at all, it can be particularly dangerous in Canada not only because of economic and stock market industry concentration but also the high proportion of total market capitalization […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,11,10,7],"tags":[],"class_list":["post-383","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-diversification","category-evidence-based-approach","category-graham-bodel-posts"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=383"}],"version-history":[{"count":4,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/383\/revisions"}],"predecessor-version":[{"id":405,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/383\/revisions\/405"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}