As world economies recover, more people are once again traveling to the United States, Europe and even South America or Asia. It may also be the right time to consider exploring the world with your investment portfolio.
Canadian bonds have indeed performed well over the last decade and are certainly important part of a diversified portfolio, you may want to consider investing in bonds beyond our borders.
Adding global bonds to your portfolio can provide the potential for investment income and growth.
The last few years, investors have become interested in bond funds that invest in a range of fixed income instruments, such as government, corporate and high-yield bonds. Global bond funds can provide access to investment options that may not be available within the Canadian marketplace.
Adding global bonds to your portfolio will improve your diversification.
Diversification simply means investing in a variety of different investment categories to help reduce investment risk.
One way to measure risk is to look at correlation.
A positive or strong correlation means that two investments will rise and fall at the same time in a similar market.
A negative or low correlation means that one investment will rise and the other will fall at the same time in a similar market.
Clearly two investments that are negatively correlated add diversification and help lower the risk of your portfolio.
One can purchase global bonds in the developed markets such as Canada, the United States and other G-7 nations or in the emerging markets like Brazil, Russia, India and China. Generally speaking bonds have a low correlation to equities, therefore adding diversification to your portfolio and ultimately reducing your risk.
From a currency point of view our strong Canadian dollar could be an opportunity to buy bonds cheaply abroad.
When one purchases a global bond fund one will be exposed to different kinds of bonds like government bonds issued by countries, corporate and high-yield bonds issued by corporations.
As the global economy continues to recover, it might be a good time to evaluate your current investment portfolio to ensure that you are well positioned to capture future growth.
If you wish to be globally diversified then consider investing a portion of your fixed income investments in global and emerging markets bonds. This strategy will provide you with a higher level of diversification, exposure to foreign currencies and the opportunity for higher returns
Remember to always consult your advisor before taking any action.
Written by Stuart Kirk, CIM.
Stuart Kirk is an Investment Funds Advisor with Manulife Securities Investment Services Inc and a Retirement Planning Specialist with Hicks Financial Inc. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc or Hicks Financial Inc. For comments or questions Stuart can be reached at stuart@ghicks.com or 250-954-0247.
