VIU:CC - Enhance Returns and Reduce Volatility: Diversifying Beyond TSX and SPY Stock
2023-10-18 17:00:00 ET
You’ve meticulously selected a basket of Canadian dividend stocks , each representing promising businesses from the Great White North.
To further diversify, you’ve cast your gaze south, anchoring your portfolio in the U.S. market with the widely recognized SPDR S&P 500 ETF ( NYSEMKT:SPY ).
With a foot in both Canada and the U.S., you might feel your investment journey is well on track. But have you considered the vast financial tapestry that lies beyond North America’s shores?
If you’ve confined your investments to these two regions alone, you’re tapping into roughly 63% of the global equity market, leaving a substantial 27% of global stocks unexplored. That’s like having a library but only reading books from two shelves.
If the concept of maximum diversification resonates with you — if you believe in the potential of global growth and wisdom of spreading risks across continents — then it’s time to broaden your horizon.
Read on as I introduce two Vanguard ETF picks that could be the key to unlocking the full spectrum of global investment opportunities and further solidifying your portfolio’s foundation.
International developed markets
When we talk about international developed markets, we’re referring to countries that have advanced economies outside of North America. These nations have well-established infrastructures, stable financial systems, and matured capital markets.
Most commonly, when investors think of developed markets, they’re considering countries in Europe, like the United Kingdom, Germany, and France. But it’s not just Europe; the list also spans the Asia-Pacific region, including Japan, Australia, and New Zealand. These countries, along with a few others, make up a significant portion of the global equity market.
Each country and region has its own set of economic dynamics, industries, and companies that can behave differently from North American markets. Investing here allows you to tap into global growth stories, ranging from luxury brands in France to tech and automotive giants in Japan.
To easily invest in these countries, consider Vanguard FTSE Developed All Cap ex North America Index ETF ( TSX:VIU ), which holds over 3,800 stocks for a reasonably low 0.23% expense ratio.
International emerging markets
Unlike their developed counterparts, emerging markets represent countries that are in the process of rapid industrialization and experiencing higher than average growth rates.
The roster can vary depending on the criteria, but some of the most prominent players include Brazil in South America, Russia in Eastern Europe, India and China in Asia, and South Africa on the African continent. Collectively, these countries are often referred to by the acronym BRICS.
Alongside these, nations like Mexico, Indonesia, Turkey, and others also find their place in the emerging market classification.
With burgeoning middle classes, technological advancements, and urbanization, these countries host a multitude of sectors and industries ripe for expansion. Investing in emerging markets allows you to be part of stories that are still unfolding, from the digital revolution in India to the consumer boom in China.
However, with great potential also comes increased risk. Emerging markets can be more volatile due to factors like political instability, economic reforms, and currency fluctuations. Regulatory environments might be less predictable, and corporate governance standards can vary.
To tap into the high risk, high reward nature of emerging markets, consider Vanguard FTSE Emerging Markets All Cap Index ETF ( TSX:VEE ), which holds some 13,626 stocks for a 0.25% expense ratio.
The post Enhance Returns and Reduce Volatility: Diversifying Beyond TSX and SPY Stock appeared first on The Motley Fool Canada .
Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2023