The Canadian Home Bias and How It Can Hurt Your Investment Portfolio
Scot McLeod - Jul 10, 2017
Canadian investors, similar to most investors around the world, tend to have a “home bias,” meaning they generally invest a large portion of their portfolio in domestic markets. Investing globally, however, can help reduce the overall risk of your portfolio and, at the same time, offer increased opportunities for returns. By limiting your investment universe to Canada you may actually be increasing your portfolio’s risk profile, versus diversifying globally across asset classes.
The Periodic Table of Asset Class Returns ranks performance – from 2007 to 2016 – of select asset class returns as measured by global market indices. It clearly demonstrates, for example, why a portfolio invested primarily in Canadian large-cap stocks can be at a disadvantage. Canadian large-cap returns – and small-cap returns for that matter – both outperformed and underperformed other global market indices over this period. Further, Canadian-focused portfolios may be missing out on certain global sector investment opportunities that are not available through investing only in Canada. That being said, asset class returns can vary from one calendar year to another, making timing investment in top performing asset classes each year a difficult task.
As the Periodic Table of Asset Class Returns demonstrates, your portfolio should be well-diversified amongst global asset classes to enhance return and reduce risk.
Click here to download "Period Table of Asset Class Returns"