2017 stock market performance in Canada, TSX of 9.1% compared to the US, S&P 500 of 18.9% in US funds and 12.7% after adjusting for rise in C$, makes another argument that investing in Canada alone can be short changing oneself. Yes, that is true and for that reason alone, Canadian ETF’s are not a truly diversified portfolio. They will be overly dependent on the two big sectors here, financials and resources. Since energy and resources did poorly last year, the banks alone couldn't match the fast rising technology and industrial sectors of the US economy. So, to be properly diversified, we need to own stocks exposed to several sectors not necessarily several countries.
The bigger question for 2018 is whether the US market and economy keeps marching on with another strong stock market return? We have certainly entered the euphoric phase but that can last for longer than expected by experts. Economic slowdown here in America and abroad in China is the only severe condition for market reversal. Unfortunately markets react first so we will only know after a drop in stock prices that we are in a recession. There seems to be no sign of a recession on the horizon, instead with tax changes in U.S., next year looks like a bumper year for profits which ultimately drives stock market performance.
This is where diversification further into not just industry sectors but instruments such as preferred shares and even low yielding bonds can be employed. Fortunately we use them along with dividend yielding solid utilities, banks and telecom. There is little reason to change our strategy.
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