Don’t hold too much Canadian stock

The average Canadian investor is holding way too much of their portfolios in Canadian stocks. I heard a statistic a few months ago (though I can’t seem to find it again) that suggested as much as 93 per cent of all of Canadians’ investment assets are in Canadian holdings.

This substantial domestic bias is really hurting your returns. Sure, 2016 ended up being an OK year for the TSX (Canadian stock index) but look at how much the TSX has underperformed over the past decade. If you invested $100,000 in the TSX index 10 years ago, it would be worth only $114,510 today. That same $100,000 invested in the S&P 500 (U.S. index) would be worth $160,921. A $100k investment in the MSCI World Index would be sitting at approximately $130k today.

Not only has this excess Canadian content hurt investor’s returns in the past, it could get even worse unless people make changes now.

Our current economic outlook for the Canadian markets isn’t great and the lack of diversification could have even worse consequences in the next decade.

Our client portfolios are mostly underweight Canadian stocks right now and that’s not something that we will likely change anytime soon.

So, why do most Canadians hold so much domestic equity?

There’s definitively some people who feel more comfortable investing in what they know, and no doubt a large part of the population who are misguided by the perceived ‘safety’ of dividend producing stocks, but I don’t think those reasons are the real culprit.

The real reason why we, as a country, are so overweight in Canadian stocks is that most Canadians still invest with the major banks.

As highlighted by recent CBC reports, the banks have some pretty troubling conflicts of interest at play, and they simply find it more profitable to invest their clients in money in Canadian stocks, even if the people providing these recommendations know it’s not the right asset allocation. You’d be surprised to see how much money invested with the big five banks is put right back into the stocks of those same banks.

The good news is that there are better options out there.

How do you know where to move to and who to trust? There is, fortunately, a lot of valuable information and options out there if you start looking a little more and asking the right questions. I will be speaking at a seminar in Kelowna on May 16 that will be bringing in several speakers to help educate consumers on how to benefit by “breaking up with their bank” and investing their money elsewhere. The speakers will include an accountant who will highlight how much you can potentially save in taxes, a couple of investment managers to highlight what real diversification means and even a former bank advisor who will talk about why he couldn’t look his clients in the eye anymore while providing recommendations that he didn’t believe in (but was forced to give).

I will provide some more details of the seminar in my next couple of columns, but, in the meantime, feel free to email me if you’d like to attend and I can pass your information on to the organizer.