Yes I’m Canadian and I love my Country. The diversity at every level is what makes this place so incredible. If you talk to most people that live here they would probably tell you they would never live anywhere else. When it comes to investing though, this also seems to be a very common theme known as a home bias. Home Bias is an investors’ natural tendency to be most attracted to investments in domestic markets. Investors tend to focus more on their home markets and the companies that do business within these markets because they are familiar with them. This is not only prevalent when it comes to investing in the stock market but with real estate ownership as an investment as well.
Let me start by saying Canada has a number of fantastic companies to invest in as well. Our banks have proven to be some of the strongest in the world and we have almost every natural resource the world could use. For a foreign investor we are a very safe and stable place for them to put their money. So what is wrong with putting all or the majority of your money in Canada…? Lack of Diversification!
As amazing and habitable it is to invest in Canada you are missing out on the rest of the world’s opportunity. Even more so Canada is not immune to recessions, low oil prices, or even political issues that can negatively affect your portfolio. During times when the Canadian economy is not as strong, being diversified in other Countries can help balance out your portfolio to reduce declines or even increase returns.
Loss of opportunity is in my opinion one the biggest issues of a home bias. Let’s look at Canada’s GDP vs the rest of the world. In 2017 Canada’s GDP represents 2.47% of the world. In my eyes you are ignoring 97.5% of the world’s opportunity. Even worse there are many places around the world where the growth of the middle class is expanding rapidly leading to larger prospects of growth and opportunity. Canada itself has an aging demographic and many other issues that are still to be solved.
Now I’m not suggesting you blow up your Canadian portfolio in place of foreign investments. There is definitely a lot to consider including currency risk you may not be exposed to while invested in Canadian companies. What I am suggesting is you need to take a hard look at your portfolio with your financial advisor. There may be ways to enhance your portfolios returns or even more so reducing its overall risk. Diversification comes in many ways and diversifying your investments in other regions around the world may be your next step to protecting your portfolio. Here’s a good video showing a great example of this… Click Here
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