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Investment opportunities abound across the world! By investing abroad, you can increase the growth potential of your portfolio and protect it from any slowdown in the Canadian market. This is the major advantage of geographic diversification.
Prosperity of foreign markets
As shown in the chart below, the Canadian economy accounts for only 1.8% of world GDP (Gross Domestic Product). To fully benefit from the growth of industrialized or developing economies, investments should be allocated across emerging nations (48.8%), the United States (21.1%), and Europe (18.9%).
It is therefore no surprise that large institutional investors, who manage billion-dollar portfolios, are partial to international markets.
A compelling example
International investments help mitigate risks and enhance returns. This can be verified by tracking two portfolios with the following asset allocation:
Portfolio A
50% in bonds (TSX DEX Universe Bond Index)
50% in Canadian equities (S&P/TSX composite)
Portfolio B
50% in bonds (TSX DEX Universe Bond Index)
25% in Canadian equities (S&P/TSX composite)
15% in U.S. equities (S&P 500)
10% in international equities (MSCI EAFE)
Based on historical market data for the period from 1984 to 2008, we note that Portfolio B, which is sufficiently diversified geographically, records a higher return at lower risk.
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Average annual return
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Standard deviation
(% of variations)
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Portfolio A
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9.0%
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8.7%
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Portfolio B
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9.5%
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7.7%
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Difference
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+ 0.5%
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- 1.0%
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This difference in returns of 0.5% could seem to be unimportant at first but it has a significant impact on the long term:
 | With a return of 9%, a $250 investment per month in Portfolio A is only worth $266,327 after 25 years.
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| The same amount invested in Portfolio B, which has a return of 9.5%, is worth $287,629 after 25 years, that is, $21,302 more! |
What tools should you choose?
Under current tax regulations, you can hold up to 30% of your RRSP in foreign investments. Are you doing so?
The simplest way to invest abroad is through mutual funds. You can invest in specialized funds that focus on different countries or in global equity funds where portfolio managers decide on asset allocation by continent and country. Such portfolios often consist of well-known multinationals that have earned the trust of consumers across the world.
Request information on Desjardins Funds with foreign content.
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