Diversifying your investments is a key component of any successful investment strategy, and it’s especially important for those who are heavily concentrated in natural resources. This can be a problem in Canada. Some people are even concentrated in natural resources without knowing it by having, say, a few key holdings in multiple sectors that are in an oil producing part of the country like Alberta and therefore have business outcomes heavily linked to oil prices.
By spreading your investments across different asset classes, industries, and regions, you can reduce your exposure to specific risks and increase your potential for long-term growth. In this post, we’ll explore some effective strategies for diversifying your investments in Canada to minimize risk and maximize your potential returns.
Which Asset Classes Should I Diversify In?
One of the first steps in diversifying your investments is to consider different asset classes available to Canadians. While natural resources may be a core part of your portfolio, it’s important to also have exposure to other assets:
- Buy stocks in many industries and regions.
- Hold bonds with different maturity dates and risk profiles.
- Own real estate.
- Always keep some cash in shorter term investments.
This will help to balance out your portfolio and reduce your overall risk. This makes sure that if the natural resource sector experiences a downturn, your stocks and bonds may provide some cushion and stability.
In addition to diversifying across asset classes, it’s also important to diversify within each asset class. For example, if you are investing in stocks, don’t just focus on the natural resource sector. Consider companies from different industries and sectors, such as technology, healthcare, and financial stocks. This will help to reduce your exposure to any specific industry risks and increase your chances of success.
Another effective strategy for diversifying your investments in Canada is to consider different regions and countries. While Canada may be your home country and the natural resource sector may be a key part of the economy, it’s important to also have exposure to other markets. This could include investments in the United States, Europe, Asia, and other regions. By diversifying across different markets, you can reduce your exposure to specific country risks and take advantage of global growth opportunities.
