How does your stock portfolio look after 2015? If you’re like many other Canadians who invested in energy and mining stocks, your portfolio was probably down for the year.

After all, a big part of the Canadian market are in the energy and mining sectors, and many Canadian investors invest in Canadian mutual funds and exchange-traded funds (ETFs) for the simplicity of them.

If you buy funds to get exposure to the whole market or specific sectors, you should be aware of how much they’re worth in your portfolio. This goes for your individual stocks, too.

Lower risk by managing allocations

Manage your allocations to manage your portfolio risk. Energy and mining businesses earn volatile earnings. So, some investors might eliminate them from their portfolio altogether. Others might limit them to no more than a 5% allocation each under normal circumstances.

Why? Well, you saw what happened with the energy and mining sectors in 2015. For an energy ETF example, iShares S&P TSX Capped Energy Index Fund (TSX:XEG) has fallen 28% from last year. Likewise, iShares S&P/TSX Global Base Metals Index Fund (TSX:XBM) has fallen 39% in the same time frame.

Suncor Energy Inc. (TSX:SU)(NYSE:SU) is the largest holding in the iShares S&P TSX Capped Energy Index Fund. In fact, it makes up a whopping 25% of the fund. From a year ago, it has only declined 5.5%. So, in this case, if you had bought Suncor Energy instead of the fund, you would have done better in the energy portion of your portfolio.

In any case, by limiting the allocation of any fund or stock, you limit the damage it can do to your portfolio.

What if it were a winner?

Wouldn’t limiting the allocation also limit the growth of your portfolio?

Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL), previously known as Google, has gone up 41% from a year ago, beating many funds and other alternative investments.

Assuming you bought $1,000 of Alphabet (5% of a $20,000 portfolio), it would have increased to $1,410, which looks much better than an investment of $1,000 in Suncor falling to $945. However, you couldn’t have known that Alphabet would appreciate so much, just like you didn’t know the oil price would fall so much. You can only make the best educated estimates from our research on what to buy, hold, and sell.


As long as you periodically monitor the stock allocations in your portfolio, you can manage the risk according to your comfort level. For example, some investors may decide now is a once-in-a-blue-moon opportunity to invest in solid energy companies such as Suncor Energy.

At any time, self-directed investors have the flexibility to change their stock allocations to adapt to changing environments.

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Fool contributor Kay Ng owns shares of Suncor Energy, Inc. (USA).