In the July edition of The Informed Investor, we share an update on the economy and highlight the key benefits of a well-diversified portfolio.

Diversification may seem boring sometimes. Owning a well-diversified portfolio could make one feel just average as friends offer insights on the next up and coming ’big thing’ and online pundits rave about the newest, flashiest technologies.

Yet we offer diversified portfolios to Canadians by design. A well-diversified portfolio is intended to weather many possible futures. Such a portfolio may underperform the hottest investment at any given moment but it’s constructed to weather a wide range of market conditions so that wealth grows through compounding over time.

A well-diversified portfolio not only allowed investors to weather the steep declines of early 2020 versus others who may have been concentrated in certain sectors or stocks, but also allowed for participation in the sudden and sharp bounce back in financial markets without having to time a re-entry point.

The economic outlook is almost always cloudy and it’s this uncertainty that leads us to favour a diversified approach to investing across sectors and asset classes. Our colleagues at RBC Global Asset Management (RBC GAM) have recently pointed to a number of factors that are currently clouding the horizon, including inflation pressures, currency movements, the evolution and spread of new variants, and vaccination rates in their 2021 Global Investment Summer Outlook¹. Yet these concerns must be considered in context of encouraging developments as well.

RBC Economics recently highlighted Canadian retail spending data for June² that suggested an uptick in spending after weak Canadian economic data in April and May. Nearly half of eligible Canadians are expected to be vaccinated by Canada Day, which could allow provinces to accelerate reopening plans that in turn could further boost near-term growth.

As always, we want our investments to get us to the financial goals that are important to us, no matter the path of economic and market developments. That’s the philosophy behind the diversified portfolios at RBC InvestEase.

Over the long-term, Investors who stick to a well-diversified portfolio, matched to their risk tolerance and goals, will realize that average performance achieved consistently over time starts to look above average. Over time their performance tends to pull ahead of those who followed an investment strategy that depended on luck or on predictions about the future that never played out.