Weekend Reading – Canadian home bias edition
Welcome to some new Weekend Reading: my Canadian home bias edition.
You can some recent Weekend Reading editions below:
A reminder I also shared this recent dividend income update – a brand new all-time high number!
Last but not least, I’m giving away 6 copies of The Money Master with thanks from the author, savvy real estate investor and speaker Sandy Yong. Check out my interview with Sandy and enter The Money Master giveaway here.
Have a great weekend and enjoy these reads!
Weekend Reading – Canadian home bias edition
On Financial Independence Hub, fan of this site and new MoneySense Investing Editor at Large Jon Chevreau obtained some insights from a CFA about how much Canadian content you should consider owning in your portfolio. The CFA answer:
“Based on all of the above, efficient portfolio theory argues your allocation to Canadian stocks should range between 3% to 30% of the equity side of your portfolio. That’s also based on individual preferences on additional details we won’t get into today.”
That’s fair. Personally, I’m striving for about 50/50 – 50% portfolio assets from Canada and then the rest from beyond Canadian borders.
What the CFA forgot in this thesis however (and I know Jon knows this based on how he invests – the savvy Jon Chevreau essay here about passive and active investing working in harmony), is that many Canadian companies don’t just operate nor derive some of their profits solely from Canada. Sure, some do, but many Canadian companies are far more international that you think.
- Last time I checked; Royal Bank (RY) operates in over 30 countries around the world – beyond Canada.
- Nutrien Inc. (NTR), is the largest producer of potash – and one of the top-3 largest producers of nitrogen fertilizer – in the world. Do you think all those goods just stays in Canada?
- Algonquin Power (AQN), a major Canadian renewable energy player – has three major operating subsidiaries: Bermuda Electric Light Company, Liberty Power and Liberty Utilities – not in Canada.
- Have you ever seen a map of Canadian National Railway (CNR)?
- Ever visit a convenience store? If you have, it’s probably owned by the night-owl founder himself Alain Bouchard. The company (Alimentation Couche-Tard (ticker ATD.B)) owns a whopping 15,000 stores across Canada, the United States, Mexico, Ireland, Norway, Sweden, Denmark, Estonia, Latvia, Lithuania, Poland, Russia, Japan, China, and Indonesia.
- Finally, what else do I need to say about Brookfield? A quick Google search and you’ll find companies like Brookfield Infrastructure Corporation (BIPC) and Brookfield Renewable Corporation (BEPC) that manage significant operations and assets beyond Canada – including acquiring more all the time!
These are just a few examples of course off the top of my head, and part of the reason why I own every company listed above.
Advisors often warn their clients to avoid home country bias. The main reason is we (Canada) make up only about 3-4% of the global market, implying that if investors just look at Canada, they are missing out on some opportunity costs.
That’s only partially true based on my thesis above. Historically, there is data to back it up too.
Certainly, what isn’t helping is our Canadian index is that historically cap-weighting is tilted in favour of our big-6 financial banks, life insurance companies, our energy sector and then: the rest.
I’d say for investors and advisors, we need to reflect a bit more on what home bias really means. If the aim is to create a diversified portfolio of companies that derive their profits from around the world, then you can actually do that in Canada. The rest of your portfolio, say 50%, can be from the U.S. or international holdings via indexed ETFs.
But let’s not discount some of the positive impacts that come with any home bias.
If a beloved collection of Canadian dividend paying stocks keeps you invested, helps you ride out market storms, you have some comfort in understanding our regulatory framework, and/or you want to take advantage of the Canadian dividend tax credit like I do….then invest in Canada maybe all you want. Ignore the home bias noise.
In doing so, you’re likely to achieve your financial goals AND maybe just importantly, you might avoid getting fleeced by some financial advisor who is seeking your assets under management. Just food for thought. 🙂
This investor lost a colossal $108,462 in a day. Double his salary – in a day. Trading stocks. Don’t trade.
From the Dividend Income File
Rommel from My Prudent Life offered up a few ways to build multiple income streams – some of them rather easily.
Speaking of income, congrats to fellow blogger and dividend investor Dividend Earner for making it in the mainstream media of late:
Chrissy from Eat, Sleep, Breathe FI realized financial independence recently – which means to her:
- No longer having to work for money.
- Any work (paid or unpaid) is optional and purely for enjoyment.
A BIG congratulations to Chrissy and her family regardless of what those retirement police requirements are or are not – doesn’t matter!! You did it!
I like the new direction of Matt Poyner’s site – DividendStrategy.ca – thanks for the mention!
More Weekend Reading…
Does home bias have potential drawbacks? Yes. But the financial future is always very cloudy. This is why you should at least consider investing beyond Canada – even if you love our dividend paying stocks.
Rob Carrick wondered if you would buy ‘enjoy tonight’ meat? Uh maybe, but generally a hard no for me.
Peter Hodson shared five reasons why a market dip will….not….happen.
A big thanks to Dale Roberts and the MoneySense team for including me in this week’s edition of making sense of the markets – check out the link for the artcile and much more including Bitcoin news!
I’ll be back next week to answer a reader question about REITs. I love reader questions!
Want me to answer one? Leave a comment or visit my Contact page.
I try my best to answer every email or question…
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