I am a Canadian who is interested in index fund investing. I am in my early 20s so I have a long time horizon.
I opened a tax free savings account recently so I am ready to start building my portfolio.
One really common trend that I have noticed among Canadian investors on forums is that they tend to hold a lot of Canadian equities. 33% Canadian/ 33% US/ 33% International seems to be very common. And a lot of times higher in the Canadian equity.
If we follow the cap-weighted allocation, Canadian equities should only make up about 4% of our portfolio. But I rarely see anyone with lower than 20% Canadian allocation.
I know the reasons behind having home bias... Currency risk, dividend tax credit on domestic investments, lower MERs.
For my case, I am still far from maxing out my TFSA so the tax credit does not matter. And I don't think the 0.02% extra MER fees should be a deciding factor. So it comes down to currency risk.
What is more important? Less currency risk or proper diversification?
If I plan to make monthly contributions for the 20+ years and withdraw over the span of a decade or so, wouldn't currency risk be greatly minimized over time? It seems like the only risk would be if the CAD suddenly spiked near my retirement years and doesn't come back down for the next 15 years. Historically, this hasn't seemed to happen yet.
Also, doesn't your income, fixed income (bonds) and housing price all depend on the Canadian market already? What if the Canadian market tanks when you are about to retire?
If you have only about 20% in Canadian equity, at least you can initially withdraw from Canadian equity if the CAD suddenly spikes when you are about to retire and withdraw from your US/International equities later on.
How much in Canadian equities would you recommend to a Canadian investor?
Submitted February 14, 2017 at 11:06PM by Felr3 http://ift.tt/2lhYoUJ
