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Canada can be a great place to invest. But many Canadians may not realize just how much of their personal wealth is in Canada or tied to its economy. In fact, the average Canadian has approximately 90% of their total assets in Canada. These assets can include a home, savings, investments, employment income and pensions (both private and government).

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40.6% Real estate
18.6% Funds, stocks and bonds (Domestic)
26.5%  7.9% Funds, stocks and bonds (Foreign)
15.8% Pensions, insurance, CPP/QPP
11.4% Cash and GICs
5.6% Private mortgages and businesses

Source: Investor Economics Household Balance Sheet Report 2019, data as of December 2018

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When it comes to investing, it’s not surprising that many Canadians tend to favour domestic companies whose products and services they are most familiar with. This inclination is called “home-country bias.” It is the tendency to invest close to home and is not unique to Canada. In fact, as this chart shows, it is a worldwide phenomenon.

Home country bias by country

Home country bias by country

Source: Global index weight reflected by country’s weight in the MSCI All Country World Index as of May 31, 2019. Investor holdings in domestic market sourced from the IMF, as of December 2014.

Although investors may feel more comfortable choosing investments that are close to home, home-country bias can leave them at greater risk if their domestic economy falters. There are two reasons for this higher risk:

Concentration risk: Canada in comparison to the world

To counter this, investors can look abroad to achieve greater diversification.

Here are two steps you can take to address the level of home-country bias in your investment portfolio:

Step 1: Complete this 2-minute questionnaire to assess your home-country bias.

Fill in the form to generate your results to review where you hold your wealth today.

Click here

Step 2: Reduce the impact of home-country bias with one of the fundamental principles of investing: diversification.

An easy way to start is to invest some of the new contributions you make to your investment account(s) in other geographical regions and sectors. By diversifying globally, you may increase your return potential, while also lowering volatility, as the historical chart below illustrates:

Reduce the impact of home-country bias with one of the fundamental principles of investing: diversification.

Source: RBC GAM, Morningstar, as of June 1, 2009 to May 31, 2019. Composition of global balanced portfolio: 35% Bloomberg Barclays Global Aggregate Index (Hedged), 1% FTSE TMX Canada 30 Day T-Bill Index, 4% JPMorgan EMBI Global Diversified Index, 7% MSCI Emerging Market Index, 22% MSCI World Index ex Canada, 30% S&P 500 Index, 1% S&P/TSX Composite Index. Indexes used to represent each of the asset classes shown: Cash = FTSE TMX Canada 30 Day T-Bill Index, World government bonds = FTSE World Global Bond Index (Hedged), Canadian government bonds = FTSE Canada All Government Bond Index, Emerging market bonds = JPMorgan EMBI Global Diversified Index, Global equities = MSCI All-Country World Index, Canadian equities = S&P/TSX Composite Index, U.S. equities = S&P 500 Index, Emerging market equities = MSCI Emerging Market Index. An investment cannot be made directly into an index. The graph does not reflect transaction costs, investment management fees or taxes, which would reduce returns. Past performance is not a guarantee of future results. All performance in $CAD.

“Investing in a globally diversified mix of equities and fixed income can help steer you through various market conditions, including short-term market declines in any one asset class or region” Sarah Riopelle VP and Senior Portfolio Manager, RBC Global Asset Management

A broadly diversified global portfolio has the potential to smooth out your investment experience. It can reduce the risk of losses and enhance your potential returns over the long term.

Ask your advisor how you can globally diversify your portfolio.

1. Source: Bloomberg, as of June 19, 2019 Percent of world market capitalization of listed domestic companies.

Disclosure

This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information.