Diversification

This is a subject everyone seems to be talking about and about which I do not seem to take very seriously. I used to be more diversified that I am now. I used to have bonds, GICs, international stocks etc. At the moment I basically only have good Canadian dividend paying stocks.

Why the change. I did not think that diversifying into international stocks really helped my portfolio. It always was a lot of work keeping track of foreign markets and currencies. It is not that I do not have exposure to international markets as I have Canadian that sell or deal internationally.

The thing is I do not think that I have enough money to really worry about such diversifications. Bonds, GICs do not pay much at the moment, so why bother with such investments until this change.

At this time I am doing well with my Canadian dividend paying stocks. If any get into serious trouble, it will affect my portfolio adversely, but not critically. Now when there are problems some companies still raise dividends, some keep them flat and some cut them. My portfolio can handle this. Each recent bear market has affected different companies differently.

However, if times change, then I will look again at what I am investing in. But currently, I do not think that I have enough money invested to go to the trouble of diversifying outside Canada, or even outside stocks.

Residential Mortgage-Backed Securities (RMBS) were graded as low in risk because it was felt that the whole US housing market would not collapse. It was felt that diversifying in different geographical areas in the US would be a protection. The problem was that the whole US housing market did collapse. Also, the 2008 bear market seems to have affected the whole world. So, what I am saying is that how you diversify can be important and some diversifications may not get you what you expect.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.