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Interesting topic...

It's amazing to me how correlated all these markets have become. I tend to use a correlation matrix when plotting my portfolio allocation categories to avoid highly correlated groupings.

If one were to compare the TSX (XIU), Nasdaq (QQQQ), Intl Emerging Markets (VWO), All World Index (VT) and US index (VTI), look at how these groupings correlate at the present:

High positive correlations
VTI + 0.99 QQQQ
VTI + 0.97 VT
VT + 0.96 QQQQ
VT + 0.93 VWO
VTI + 0.85 VWO
QQQQ + 0.83 VWO
VWO + 0.82 XIU
VT + 0.71 XIU
VTI + 0.65 XIU
QQQQ + 0.64 XIU

I've concluded that all worldwide and domestic equities should go in the same basket for this reason. There's really not much of a difference between small/medium/large cap or international equity when viewed from a correlation standpoint.

In contrast, REITs, Gold, Bonds (especially Real-return bonds), GICs and Cash are non-correlated with the overall market in most years. Holding them in equal weightings will insulate one from the fluctuations of the market and allow for a decent long term gain (and a sleep-at-night factor). My philosophy is to weight each category no more than 20%.
 

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Investing in North America make the most sense to Canadians because we understand it a lot better then the rest of the world. You can get hit hard investing outside of North America because you have very little idea of how those countries businesses, stock markets and governments operate.

You can invest in multinational companies and recourse stocks to get global diversification.
 

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You can invest in multinational companies and recourse stocks to get global diversification.
True but it is really hard to get a bead on what geographic diversification you are achieving. You have to go on faith that the companies are pursuing the opportunities logically but this is often not the case.
 
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