Where to Invest $1,000 in December 2023

This globally diversified ETF is a great companion to your Canadian stock picks.

| More on:
analyze data

Image source: Getty Images

First and foremost, it’s crucial to remember that the optimal investment choice should always hinge on individual factors such as your time horizon, risk tolerance, and specific financial objectives.

However, understanding the general composition of my readers’ portfolios, it’s clear that many of you have active holdings in individual Canadian stocks.

With this in mind, I want to highlight a perfect global ETF that complements a portfolio rich in Canadian stocks. This ETF offers exposure to markets outside of Canada, ensuring that your investment strategy is well-rounded and not overly concentrated in any one geographic region or market.

The addition of this global ETF to your portfolio can provide a hedge against domestic market volatility and an opportunity to capitalize on growth across various economies and sectors worldwide.

Why diversify globally?

Diversifying globally is a crucial strategy for investors, especially when considering the composition and limitations of the Canadian market.

Canada represents just about 3% of the MSCI World Index by market capitalization weight. This statistic is significant—it implies that by focusing solely on Canadian markets, investors are potentially missing out on approximately 97% of the global stock universe.

One of the key reasons to diversify globally is the sector concentration risk inherent in the Canadian market. Canada is particularly heavy in sectors like energy and financials.

While these sectors can offer substantial returns, especially in favourable economic cycles, their dominance in the Canadian market creates concentration risk. This risk becomes apparent during downturns in these specific sectors, which can disproportionately affect the overall performance of a portfolio heavily invested in the Canadian market.

On the other hand, global diversification, especially through an international ETF, provides exposure to a broader range of sectors. For instance, the U.S. market offers significant exposure to technology, communication, and consumer discretionary sectors, which have been pivotal in driving growth.

My ETF of choice

When considering an ETF for global diversification, my preference leans towards iShares Core MSCI All Country World ex Canada Index ETF (TSX:XAW).

I like XAW because it is both extremely diversified and affordable. This ETF holds over 9,000 stocks from around the world and charges a fairly competitive 0.22% expense ratio. It has over $2 billion in assets under management and is easily bought and sold like any other stock.

Because XAW excludes Canadian stocks, investors can therefore use it as the core of their portfolio, while picking and choosing their own domestic equities (and The Fool has some great suggestions below).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

question marks written reminders tickets
Dividend Stocks

Dividend Investors: Is BCE Stock a Buy Now?

BCE now offers a 7.9% dividend yield.

Read more »

A bull outlined against a field
Tech Stocks

Is a Bull Market Here? 4 Reasons to Buy Celestica Stock Like There’s No Tomorrow 

Celestica (TSX:CLS) stock has been a huge winner for investors this year, but there could be even more in the…

Read more »

Retirement plan

1 Retirement Savings Hack That Has Created Many Millionaires

Investors can retirement with $1 million in savings by investing in index funds such as the S&P 500.

Read more »

edit Taxes CRA
Dividend Stocks

CRA Money: 2 More Days to Boost Your Tax Refund!

Dividend stocks like Toronto-Dominion Bank (TSX:TD) can be great RRSP holdings.

Read more »

close-up photo of investor Warren Buffett
Stocks for Beginners

The Best Warren Buffett Stocks to Buy With $300 Right Now

These Warren Buffett stocks have long histories of growth, each offering their own reasons for why investors need them today.

Read more »

grow money, wealth build
Dividend Stocks

3 TSX Dividend Stocks With Yields Above 7% (But Are They Safe?)

These three dividend stocks all have ultra-high yields, making them some of the best to buy if you're looking to…

Read more »

oil and natural gas
Energy Stocks

3 Energy Stocks Already Worth Your While

TSX energy stocks could shine for much longer. Here's why Canadian Natural Resources (TSX:CNQ), Parex Resources (TSX:PXT), and another oil…

Read more »

Light bulb with jester hat perched on top
Dividend Stocks

3 Canadian Dividend Stocks With Payouts That Are No Joke 

Here are three top Canadian dividend stocks long-term investors would be remiss to ignore, particularly at these current valuations.

Read more »