The Importance of Diversification
By creating a mix of asset classes and regions, you can reduce
the overall risk of your portfolio. Losses in one area can be
offset to some degree by gains in another - helping smooth the
overall performance of your portfolio.
This table illustrates that no individual asset class or region
is the top performer year over year, and that frequently the
different types of securities are moving in opposing
directions.
The S&P/TSX Composite index (Canadian equities - the red
box) for instance was the number one performing asset class among
these groups in 1999, 2004 and 2005, but it was near the bottom in
1998 and 2001. Since no one can predict the winning and losing
asset classes from year to year, diversification may help reduce
overall risk.
Calendar Year Returns of Different Asset Classes and
Regions
| 2.6 | 6.7 | 9.1 | 13.0 | 17.6 | 20.2 | 38.5 | 2010
|
|
5.4 | 7.4 | 8.0 | 12.5 | 35.0 | 52.0 | 75.1 | 2009
|
|
-46.6 | -41.4 | -33.0 | -30.1 | -21.2 | -17.2 | 6.4 | 2008
|
|
-16.5 | -10.5 | -5.3 | 2.0 | 3.7 | 9.8 | 18.6 | 2007
|
|
4.1 | 15.4 | 16.6 | 17.3 | 17.9 | 26.4 | 32.1 | 2006
|
|
1.9 | 2.3 | 6.5 | 11.2 | 19.7 | 24.1 | 31.2 | 2005
|
|
2.8 | 7.1 | 9.7 | 11.9 | 14.1 | 14.5 | 16.8 | 2004
|
|
5.3 | 6.7 | 13.8 | 20.5 | 26.7 | 27.8 | 42.7 | 2003
|
|
-22.9 | -21.3 | -16.5 | -12.4 | -7.0 | -0.9 | 8.7 | 2002
|
|
-16.3 | -12.6 | -6.4 | 3.4 | 3.8 | 8.1 | 8.9 | 2001
|
|
-28.2 | -11.0 | -5.9 | 0.4 | 7.3 | 7.4 | 10.2 | 2000
|
|
-1.1 | 14.4 | 14.6 | 20.2 | 20.3 | 31.8 | 57.2 | 1999
|
|
-19.9 | -17.9 | -1.4 | 4.6 | 9.2 | 29.2 | 38.0 | 1998
|
|
-7.7 | 6.6 | 7.0 | 9.6 | 14.3 | 27.8 | 39.2 | 1997
|
|
6.6 | 6.9 | 12.3 | 17.1 | 23.6 | 28.3 | 28.5 | 1996
|
|
-7.8 | 8.5 | 13.9 | 14.5 | 20.7 | 24.9 | 33.8 | 1995
|
|
-8.6 | -4.3 | -1.8 | -0.2 | 4.0 | 7.3 | 14.5 | 1994
|
|
14.8 | 18.1 | 24.0 | 32.6 | 38.6 | 48.3 | 82.3 | 1993
|
|
-3.1 | -1.4 | 9.7 | 9.8 | 18.3 | 22.4 | 30.1 | 1992
|
|
11.6 | 12.0 | 12.1 | 22.1 | 30.0 | 45.5 | 59.3 | 1991
|
|
-23.1 | -21.2 | -19.4 | -14.8 | -10.4 | -2.9 | 7.5 | 1990
|
|
7.5 | 12.8 | 12.8 | 15.7 | 21.4 | 27.8 | 60.1 | 1989
|
| Source: Zephyr StyleADVISOR. Returns in Canadian dollars. |
| DEX Universe Bond Index | (Canadian Bonds) |
| MSCI EAFE Index | (International Equities) |
| S&P/TSX Total Return Index | (Canadian Equities) |
| MSCI Emerging Markets Index | (Emerging Markets Equities) |
| Russell 2000 Index | (U.S. Small Cap) |
| S&P/500 Index | (U.S. Equities) |
| BMO Small Cap Index | (Canadian Small Cap) |