You love Canada don't you: Home bias

Aug 12, 2020 | Jeremy Goldfarb


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From the investment desk

 

 

The Canadian economy generates about 3% of the World's GDP on an annual basis. If that is the case, then why does the average Canadian retail investor have 60% Canadian stocks in their investment portfolio??

Turns out....we are not alone in this home bias phenomenon if you look at the chart below. 

 

In an economically dominant country such as the US,  home bias comes with less risk, given that there is an incredible amount of choice available, with both domestic and international tilt on the balance sheet. As Canadian investors however, we need to be more careful, and look abroad to diversify our portfolios effectively. While components such as tax efficiency, currency management, access and cost are important, we cannot let these tail factors wag the investment dog.

 

Our balanced investment portfolio (35/65) hold approximately 14% Canadian stock on average. This figure has ranged between 9-21% historically. What this helps us accomplish, is adding another layer of diversification to your investment stance, offering stability and opportunity alike. You may feel more comfortable investing in the things you know at home, but understand that this comes with embedded risk that you may not be fully aware of. 

 

But what about currency? --- we'll answer that one next time.