TD E-Series: Can. index vs U.S/international index fund

[LeStat]

I noticed that all the e-series portfolio always have more % invested in U.S or Intl fund than Canadian fund. The fact is over the last 10 years or since inception, Canadian fund has consistently been on the rise and is actually the only index fund with a positive return. Over the last 5 years, it earned a 15% return compared to U.S index fund's -0.2%.

Is there a specific reason as to why portfolios always have more invested in U.S than Canadian index funds? I'm thinking to invest in 15% can bond, 45% canadian index, 20% U.S index, and 20% international index. Is there something I should be aware of before doing that?

[YYZFA]

I noticed that all the e-series portfolio always have more % invested in U.S or Intl fund than Canadian fund. The fact is over the last 10 years or since inception, Canadian fund has consistently been on the rise and is actually the only index fund with a positive return. Over the last 5 years, it earned a 15% return compared to U.S index fund's -0.2%.

Is there a specific reason as to why portfolios always have more invested in U.S than Canadian index funds? I'm thinking to invest in 15% can bond, 45% canadian index, 20% U.S index, and 20% international index. Is there something I should be aware of before doing that?

What specific portfolios are you talking about? Do you mean what individual investors select as their allocation for each fund?

The Canadian index fund may have done better than the bond, US or international index funds for the past several years, but it's not nearly as diversified as these other funds. Canadian equity makes up only 2 to 3 of all global equity, and is heavily dependant on the price of commodities. It's very high risk. Also, past performance does not mean future performance will be the same. As a matter of fact, inflated returns have a tendancy to correct themselves over time. If you over exposed yourself to one segment of the market and that segment went through a significant correction, you'd your overall net worth would suffer more severely.

By the logic of overexposing yourself to the past hottest market, you should invest all of your money into the Canadian index fund and forget completely about the other funds. That probably wouldn't be a good idea. It's widely recommended choosing a more diversified and balanced allocation (some would argue that even 25% exposure to Canadian markets is overexposed due to the relative size of our market), and sticking with it, especially if you are buying more money on a consistent basis, or "dollar cost averaging". Then, once a year or so, you "rebalance". This is selling off some of your better performing funds, and buying units of the poorer performing funds in order to get your allocation back to it's original percentage. This forces you to "sell high and buy low". For a very easy to understand explanation of this idea, look up the term "Couch Potato" on www.moneysense.ca

[mr_raider]

A lot of that loss was tied to currency fluctuation.