Lessons learned in diversification: Reducing Canadian home country bias

Image by Pexels: Mihail Nilov

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Many financial advisors, analysts and investing gurus alike tout the merits of portfolio diversification. In this updated posted, you can read on about my recent lessons learned in diversification, including reducing my Canadian home bias since becoming a DIY investor well over a decade ago.

Theme #1 – how many stocks are enough?

This answer depends on who you ask but there are some experts who claim owning about 30-40 individual stocks, in various industry sectors, will provide modest diversification to mitigate portfolio risk. Here are some examples:

Lowell Miller author of The Single Best Investment:

“In our portfolios for individuals and institutions we tend to carry thirty to forty stocks.”

“The more stocks you have, the more your group will behave like an index.”

“If you don’t want to hold the thirty to forty stocks that satisfy my personal comfort level, you can reduce the number – bearing in mind that each reduction increases the risk that a single bad apple in your bushel will have an excessive impact on results.”

Gary Kaminsky author of Smarter Than The Street:

Holding 100 stocks is yet another myth of the great Wall Street marketing machine.”

“If you’re going to do your own work/research, you should feel comfortable that with 25 to 30 names, you have enough diversification and you have enough skin in the game.”

Gail Bebee author of No Hype – The Straight Goods on Investing Your Money:

“A popular rule of thumb asserts than an individual stock should represent no more than 5% of a portfolio.  This would mean owning at least 20 stocks.”

“Some studies of past stock market performance have concluded that owning about 15 to 20 stocks provides the best return for the least risk.”

Stephen Jarislowsky, Canadian billionaire and author of The Investment Zoo:

“Out of the many thousands of stocks I can choose from worldwide, I therefore really only need to look at 50 at most.”

Those estimates seem about right to me as a practising DIY investor.

When it comes to individual stocks though, dedicated readers of this site will know I’m a fan of portfolio diversification myself and practice the following personal rules of thumb to avoid individual stock risk:

  • I strive to keep no more than 5% value in any one individual stock, and
  • I’m working on increasing my weighting in low-cost ETFs over time to avoid my bias to Canadian dividend payers in my portfolio while generating total returns. Read on…

You can always review some of my current stock holdings on this standing page here.

Theme #2 – why diversification?

Portfolio diversification aims to lower the volatility of my portfolio because not all asset categories, industries, nor individual stocks will move together perfectly in sync. By owning a large number of equity investments in different industries and companies, and countries, those assets may and do rise and fall in price differently; smoothing out the returns of my portfolio as a whole.

There is a close logical connection between the concept of a safety margin and the principle of diversification.” – Benjamin Graham

While I/we continue to hold no bonds in our portfolio at this time, as I contemplate semi-retirement in the coming years, I am seriously considering ramping up our cash on hand to counter any bearish equity markets when we’re not working full-time.

Theme #3 – how can I reduce my Canadian home bias with ease?

During the pandemic, I decided to make a few portfolio changes to simplify my portfolio more as semi-retirement planning continued. These were my decisions related to asset location and further diversification.


In the past, I’ve held all Canadian dividend-paying stocks inside this account.

During early 2020, in looking at my sector allocation to the oil and gas industry, I decided to cut complete ties in late-2020 with Inter Pipeline (IPL) after their dividend cut of 72% earlier in the year. You can see some of that dividend news I reported in this previous dividend income update.

I used the proceeds gained from IPL over the years to invest in low-cost ETF XAW.

My theory then was while XAW will provide far less yield inside my TFSA going-forward, which will impact my TFSA income generation and reporting on this site, owning XAW will provide some much needed total return growth from ex-Canada.

XAW iShares December 2020

Since fund launch by iShares, I’ve long since listed XAW as one of the many great funds to own on my dedicated ETFs page. So, I’m eating my own cooking. I bought more XAW inside my TFSA during the pandemic and since the pandemic was declared over.

Don’t forget about the many great things you can do and invest with, inside your TFSA:


In a taxable account, Canadian dividend paying stocks earn favourable tax treatment thanks to the dividend tax credit. So, I am keeping those Canadian stocks there and see no reason to change that approach.

Investments inside our RRSPs and my Locked-In Retirement Account (LIRA) are different.

As referenced above, in recent years I’ve gravitated to owning more ETFs for low-cost investing to capture U.S. market returns. In fact, before the pandemic I sold off many individual U.S. stocks. While I keep a few “moaty” dividend stocks in our portfolio the RRSP and LIRA assets are being streamlined.

As an example, I now own more low-cost ETF QQQ than I did in 2018-2019.

Like XAW, my theory then was while QQQ will provide far less yield inside our RRSPs as time goes on, price gains should be realized from the continued tech boom using a lazy total return approach.

So far, so good since pre-pandemic days.

QQQ ETF August 2023

It’s certainly hard to argue with the results that passive investing can offer from part of the U.S. market. This is why I own a bit of QQQ – it’s a nice tech kicker that Canada doesn’t really have.

Lessons learned in diversification – reducing my Canadian home bias changes

Am I done with the portfolio changes?

Not sure yet. 🙂

But I am convinced that more diversification and simplification of our portfolio is wise over time because managing dozens of stocks from both Canada and the U.S. was getting a bit unruly.

I’ve been very fortunate with my decisions in recent years. My collection of moaty Canadian and U.S. stocks provide some porfolio offence and defense.

In sports, a good offence can begin with a great defence. You can do the same with your investments too.

As you consider semi-retirement or retirement have you thought about the following?

  1. A tilt towards some low-vol stocks as part of your equity allocation?
  2. A tilt towards some U.S. tech – to juice some returns when tech cycles back into favour?
  3. A review of your mix of stocks and bonds and cash that focuses on meeting your income objectives while matching your tolerance for risk?

I continue to answer all these questions myself as part of my ongoing investment plan.

Lessons learned in diversification – reducing my Canadian home bias plans

For the coming years, I see us sticking with the following asset location and general investment plan:

  1. Maintain existing Canadian dividend-paying stocks inside our taxable accounts.
  2. Max out TFSA in 2024 and potentially 2025 (?) and own more low-cost XAW.
  3. Max out RRSPs in 2024 and own more low-cost QQQ or cash-alterntive assets as a buffer. A smart mix of growth and “safe assets” inside our RRSPs will be important – RRSPs will be the first account we withdraw money from as part of our draw-down approach as required as part of any live off dividends approach:

March 2023 Dividend Income Update - Live off Dividends

I’ll keep you posted as other portfolio changes occur over time to share how we are realizing our portfolio objectives. It is my hope sharing these insights can help you out too.

What do you make of our diversification moves in recent years? What are you planning to do this year and in future years to manage diversification in your portfolio?

As always, I look forward to your comments.

Thanks for reading,


Mark Seed is a passionate DIY investor who lives in Ottawa.  He invests in Canadian and U.S. dividend paying stocks and low-cost Exchange Traded Funds on his quest to own a $1 million portfolio for an early retirement. You can follow Mark’s insights and perspectives on investing, and much more, by visiting My Own Advisor. This blog originally appeared on his site on Aug. 23, 2023 and is republished on the Hub with his permission.



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