episode:

EBI – Principle #2: Diversify Your Asset Classes

October 22, 2020

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About This Episode

The principles of evidence-based investing provide you with a framework to empower you as an investor to be able to move confidently forward towards financial security. Last week we covered why it’s important to invest in asset classes, rather than relying on market predictions and picking stocks. Today, we’re focusing on the second principle, diversifying your asset classes.

Research suggests that by and large Canadians are not diversifying the way they should be. As an empowered investor, it’s critical to understand not only the importance of diversification but why you should consider this strategy and use it within your investment approach.

On this episode, Ruben and I talk about what proper diversification looks like in your investment portfolio, the problem with home bias, the impact of poor diversification, why it feels so hard to maintain a diversified portfolio, the ongoing maintenance needed for a diversified approach, and so much more!

Thank you for listening!

Key Topics:

  • How diversifying your asset classes fits into evidence-based investing (1:44)
  • What does diversification mean? (3:50)
  • The types of asset classes that you should think about including in your portfolio (4:16)
  • What proper diversification looks like in your investment portfolio (4:56)
  • How stories can negatively impact your portfolio (5:47)
  • An example of redundancy causing poor diversification in a portfolio (6:32)
  • What a 2017 Vanguard study tells us about whether Canadians are properly diversified (7:31)
  • The problem with a home bias (8:09)
  • Why the attraction towards dividend investing can result in a poorly diversified portfolio (10:29)
  • The Nobel Prize winning economist whose research showed that diversifying your assets results in a better return for a lower risk (12:48)
  • How can you incorporate the concept of correlation to improve your portfolio? (14:00)
  • The impact of a lack of diversification during the Great Depression (16:03)
  • How the concept of diversification catalyzed the evolution of the investment industry since the 50s (17:08)
  • Why it feels so hard to maintain a diversified portfolio (18:39)
  • What history shows us about the discipline required maintain your portfolio during difficult periods (19:22)
  • Rebalancing your investments to keep your portfolio in balance (22:27)
  • The ongoing maintenance needed for a diversified approach (23:30)
  • Choosing the appropriate type of rebalancing based on your financial goals (24:58)
  • Advice from a 15th century banker (26:04)
  • What you can do right now to assess and improve your portfolio (27:16)
  • And much more!

Meet your hosts

Keith Matthews

Keith Matthews

Partner & Portfolio Manager

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Ruben Antoine

Ruben Antoine

Portfolio Manager

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Marcelo Taboada

Marcelo Taboada

Associate Portfolio Manager

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Thanks for Listening!

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