Diversification IS a Free Lunch

Canadian investors would be wise to not put all their eggs in a single basket.

Dan Lefkovitz 31 May, 2021 | 3:47AM
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Diversification Suitcase 

Diversification is often called the only free lunch in investing. A portfolio made up of building blocks capable of moving in different directions can have better risk-adjusted returns than its component parts. Allocating to different asset classes can also minimize pain during market crashes.

Consider the first quarter of 2020. As COVID-19 became a pandemic, equity markets entered a synchronized nosedive—from Toronto to New York, London to Shanghai, Sydney to Sao Paulo, and points between. Canadian stocks lost more than 20% in the first quarter of 2020; the U.S. market fell a similar amount in U.S. dollar terms. Developed-market equities outside North America shed 15% of their value, and emerging-market stocks declined 17% (both in Canadian dollar terms). It was the fastest decline since the Great Depression.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alibaba Group Holding Ltd ADR212.30 USD0.00Rating
Alibaba Group Holding Ltd Ordinary Shares26.48 USD0.00
Anglogold Ashanti Ltd ADR18.89 USD0.00
Baidu Inc ADR186.34 USD0.00Rating
Bank of Montreal101.77 USD0.00Rating
Barrick Gold Corp20.75 USD0.00Rating
Barrick Gold Corp Cedear555.00 ARS0.00
BlackBerry Ltd12.90 USD0.00Rating
Canadian Natural Resources Ltd34.41 USD0.00
Facebook Inc A329.66 USD0.00Rating
JD.com Inc ADR71.62 USD0.00Rating
JD.com Inc Ordinary Shares - Class A37.00 USD0.00
Newmont Corp62.62 USD0.00Rating
Samsung Electronics Co Ltd44.20 USD0.00
Saudi Arabian Oil Co35.25 SAR0.00Rating
Shopify Inc A1,466.87 USD0.00Rating
Tesla Inc623.31 USD0.00Rating
Woodside Petroleum Ltd ADR17.35 USD0.00

About Author

Dan Lefkovitz

Dan Lefkovitz  Dan Lefkovitz is a strategist for Morningstar's Indexes group.

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