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 ADR160.05 USD0.00Rating
Alibaba Group Holding Ltd Ordinary Shares19.81 USD0.00
Anglogold Ashanti Ltd ADR14.78 USD0.00
Baidu Inc ADR162.21 USD0.00Rating
Bank of Montreal100.29 USD0.00Rating
Barrick Gold Corp18.36 USD0.00Rating
Barrick Gold Corp Cedear555.00 ARS0.00
BlackBerry Ltd10.03 USD0.00Rating
Canadian Natural Resources Ltd33.34 USD0.00
Facebook Inc A364.72 USD0.00Rating
JD.com Inc ADR77.69 USD0.00Rating
JD.com Inc Ordinary Shares - Class A39.15 USD0.00
Newmont Corp55.22 USD0.00Rating
Samsung Electronics Co Ltd44.20 USD0.00
Saudi Arabian Oil Co35.15 SAR0.00Rating
Shopify Inc A1,486.29 USD0.00Rating
Tesla Inc759.49 USD0.00Rating
Woodside Petroleum Ltd ADR15.30 USD0.00

About Author

Dan Lefkovitz

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

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