Yesterday I talked about allocation amongst the asset classes and today I’m going to talk about the second allocation of concern, allocation amongst countries. Before I being I just wanted to reiterate that there are many different views and beliefs on this subject. What I’m going to attempt to do is simply state what I believe is the best country allocation for my unique situation. Yours may be the same but will probably be different based on your unique investment objectives, time frame and risk tolerance.
Contrary to popular opinion I believe that the majority of my retirement portfolio should be in CDN dollars. I am aware of the argument that Canada is only 2.5% of the worlds markets so we should be diversifying as much as possible to take advantage of opportunities globally. Although I agree with that in principle I believe that the majority of my holdings should be in the currency of the country that I will ultimately be retiring in. Once my dividend cash flow is established I do not want my retirement interrupted because the peso, US dollar etc... is having a bad couple of years. I currently have about 70% of my holdings in Canadian securities but would be willing to go as low as 55% (if I thought a great opportunity presented itself) otherwise I would be comfortable between 60% and 70% CDN.
(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)
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Not having the same early retirement plan as you do, my bottom up approach leads me to not really care about my geographic split btw. CAN and US. I tend to think of them more as groups of stocks/companies, and valuations. For example, I think many quality U.S. stocks are cheaper than quality Canadian stocks right now.
I agree with you, the valuations of US equities are much more attractive right now and the only buying I’ve done this year (other than a few resource stocks) have been in the US. Ie-MMM and JNJ. However, personally I just feel more comfortable with the majority of my portfolio in the currency that I want to retire in. Just out of curiosity do you plan on adjusting your CDN, US exposure when you start getting closer to retirement?
MCM
Yes. As I near retirement, I won't hold as much USD$ denominated stocks. How this will be accomplished remains to be seen. For example, I might buy CDN real estate, or start a business in Canada with the funds.
The one advantage of buying Cdn is that there are so few players in any particular market, the leaders have huge pricing power that American counterparts do not (the cell phone industry comes to mind).
as do banks...never hurts the bottom line being an oligopolist...
International investing is a great idea.
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