It is said that diversification is the only free lunch in investing. I love lunch, especially free ones, so naturally I love talking about the benefits of diversification.
Dimensional Fund Advisors recently released a report that discusses the randomness of global equity returns. My favourite highlights from the report:
Don't stay home
Canada represents only 3% of worldwide equity market capitalization, but in Canada we tend to have a huge overweight in our portfolio's towards Canadian companies. This can make sense, since there are some tax benefits to owning Canadian companies. However, since there are so many great companies outside of Canada, we may be giving up a lot in terms of available returns if we stay too close to home.
Nothing against Denmark, but this was surprising to me. Over the last 20 years, Denmark had the highest annualized returns of any developed market at 8.5%. The US came in at 9th overall with an annualized return of 4.3% over the past 20 years. What's even more interesting is that Denmark ranked #1 in only a single year through that span.
Fun to look at, and a great message in a single picture. Each tile represents a country, and it shows where each country ranks in terms of returns in any given year. This does a great job illustrating again just how random returns between countries can be from year to year.
The information in this material is not intended as investment, tax, or legal advice. Please consult your advisor or tax professionals.