Finance Solution: trim positions and get back to your allocation targets Yes, it’s true, some of the most successful investors in the world have become so by holding highly concentrated portfolios (once again, Warren Buffett is a famous example). But let’s be honest: by the time they become snowbirds, most people aren’t really investing in order to become filthy rich stock market billionaires. Rather, they want to ensure that they have enough to live a high quality of life for their remaining years, with as little uncertainty or volatility as possible. After a strong bull run, it makes sense to trim back winning positions and bring your portfolio back in line with your normal diversification targets. Yes, taking some money off of the table might mean that you miss out on some gains. But, spreading your eggs among different markets, different assets and different management styles smooths out periods of volatility, and prevents one bad mistake from destroying your portfolio. That’s a trade-off which most snowbirds are willing to make. Problem: your portfolio is too “Canadian” Keeping your money invested primarily in Canadian securities can make some sense: most of us are much more familiar with Canadian stocks, for example, and as Canadians, most of our ongoing expenses will probably be valued in Canadian dollars as well. However, toomuch exposure to Canadian investments canmean that you miss out on other areas of the world economy which are growing muchmore strongly. It can also leave you exposed to some of the idiosyncratic risks that may affect the Canadian economy more than others: a slowdown in commodities, for example. Or a run-up in the technology sector (Canada is home to relatively few tech stocks). Or a broad pullback in the price of oil. Solution: include investments from other parts of the world Despite the increasing interdependence of world markets, performance can still vary a lot from region to region. Having at least some exposure in the four main investment geographies (North America; Europe; Asia; emerging markets) is usually a good way to take advantage of some of the opportunities arising in other parts of the world, as well as smooth out portfolio performance over time. Keep in mind that one way to do this is by investing a portion of your portfolio in well-known, blue-chip companies that operate internationally. Coca-Cola sells their soft drinks all over the world, for example. You’ll find iPhones on all continents. The same goes for Nike shoes and Volkswagen cars, as well as HSBC bank branches, just to name a few random examples. And, of course, region-specific mutual funds and exchange-traded funds (ETFs) offer easy, cost-effective “instant diversification” to all four corners of the world. Problem: a few big winners are overwhelming your portfolio File under “good problems to have”: after a long-running bull market, a handful of your positions have seen strong performance. So strong, in fact, that a few big winners have come to comprise a hefty percentage of your portfolio. Sure, you could hold on to them, hoping for further gains − but at this point in the bull run, would that be wise? You’re beginning to wonder about the growing concentration risk, as more and more of your portfolio is concentrated into a few names. Should a problem occur with any one of these, your portfolio could take a big hit. CSANews | SUMMER 2021 | 25
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