Country Bias – Do you have it?

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When people invest, the majority have more invested in their country than they do in other countries, known as country bias. I was at an investment strategy meeting this morning and found out that Canadian investors are more guilty of Country Bias than any other country in the world. I was so pleased to hear this as I have always run into portfolio after portfolio that is overweight Canada.

Canada is about 2% of the world’s investment markets. Our equity (stock) market is made up of different sectors, but unfortunately three sectors dominate:

Financial Institutions     36%

Energy                            24%

Material (Mining)          10%

Total                                70%

 

I find it interesting that the most risk adverse clients are the ones who insist on being in Canada, because it feels safe. They invest in funds or ETFs that mimic the market, yet if they stopped to think about their investments they will understand that they have about a third of their investments in a sector or two of the market they are actually scared of.

The other day I was reviewing a portfolio of a prospective client. It was 60% Canadian Stocks, 40% Canadian Government Bonds. I have written about Canadian Government Bonds in the past; click here to read.  I started our meeting with a discussion about Canadian Government Bonds and then he realized these were the bonds in his portfolio. We then went on to a general discussion of the Canadian equity market. We discussed what sectors of the market he was comfortable with and which gave him discomfort. He stated that big blue chip stocks were all he really wanted, but he made it extremely clear he did not want any energy or mining in his portfolio.

Know what you are invested in

When we progressed in the discussion as to where he is currently invested, he was shocked and very upset. We looked up his investments online and when he saw what was in them he was clearly agitated. As we went through this exercise we checked to see what the return correlation of his equity portion was to the whole TSX. They moved in unison. With 70% of the TSX in three sectors and his ETFs and that Mutual Funds that are closet indexers he decided his advisor was collecting a fee from him and not actually studying the markets, forecasting the best places to be or matching the right investments to his needs and risk tolerance. I had just finished writing my latest blog about advisors simply doing what the clients thinks is right because it is less work and easy to sign up a new client. Click here to read “A very disturbing trend”. He took the time to read it and strongly stated that it was exactly what his advisor was doing with him. He is paying for advice, he should receive it.

We then did the proper work of discovering his needs, risk tolerance and other pertinent information that is exclusive to him and his life. We went through an exercise that had him involved and finding out other options for him. This weekend I will be putting an investment proposal together that will be crafted to meet his personal needs. It will not be the same as everyone else’s portfolio (a common practice these days). It will meet his growth needs right now with the right amount of protection for his risk tolerance. It will be extremely tax effective and there will be a plan to help him grow his personal net worth.

INCREASE YOUR NET WORTH

I will recommend that he not bring in more money to invest until he gets a little better control of his debt. We have to be ready for the unforeseen and just because interest rates are low doesn’t mean you just pile on the debt.Whether you believe it or not Canada did not get near as hurt in the downturn as almost every country in the world. This has resulted in our citizens’ savings less and our debt to go up, putting anyone who loses their job in a bad spot. Truth be known, some of it is because of the type of structural unemployment that is happening in Canada. People are losing high paying jobs that can’t be replaced with other high paying jobs. They have to accept a job, or two, paying less. Take a look at the oil patch; these unemployed workers are looking at an incredible drop in income, if they can get another job. I don't want to see an unforeseen situation like this put my client in a tight situation.

I see an advisor’s main purpose to be helping clients achieve or maintain their independence financially. Those advisors who follow the easy path that helps land you as a client and keep you as a client for the time being, will harm you. A good advisor will not only know where to invest, but also why.

YOUR INDEPENDENCE MATTERS and if you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca