Diversify fixed income?

[Acrossenger]

Is there any reason for Canadian investor to hold US government bond or US corporate bond given we can buy Canadian ones? Is there a reason to diversify with country in fix income?

[monty613]

other than currency, i suppose it depends how much you'd like to diversify.

i'd say it much more important with fixed income to have a solid mix of the following:

corporate (across different sectors)
government (muni, prov, canada)
term to maturity (short/long)

[cloudycanada]

people sometimes buy foreign fixed income to match their expected expenses that will be in the foreign currency

for example, if you are planning on studying in states, or make a major purchase in the states, you can buy US fixed income now so you that you lock in to the currency at today's price. That way, you don't have to worry about what will it cost you when you make the purchase in the future etc

but normally, unless you have foreign currency exposure, i don't really see a point in diversifying in foreign fixed income.

[Acrossenger]

I knew there is currency risk. However, it sounds there is no good reason to diversify in fix income since I don't plan to stay in US at all. I guess diverisfy only apply to stocks.

[LoookingForDeals]

There are few Canadian corporate bonds that are also issued on US exchanges though. So if there is a specific corporate bond you are looking at, you may have no choice but to purchase it on US exchange in US dollars.

monty613 has a good list of things to look at as well


Some things to think about when one thinks of "diversification":

- Most people associate "diversification" with just having different investments. What they are intending to do is to limit the risks assocated with one investment from affecting the other investments. However, they usually don't look at the risks associated with each holding, to assess if the investment is truly unaffected by the same risk factors. They usually make the mistake of assuming that just because the bond, stock, property, etc is a different one, that the risks are different.

- Number/quantity of different investments shouldn't be unnecessarily large or "diverse". If an investor knows what they are doing, they wouldn't diversify into so many different things. They would only select between their first few/best investment choices that offer the best and soundest chances of decent investment returns without exposing themselves to unnecessarily higher risks.

- An investment that offers a genuinely different source of investment return provides true diversification. Otherwise be aware that your basket of investments may not really offer true diversification, but just a variety of the same thing affected by the same risk factors.