It's easy to diversify your portfolio. Why not do it?

Andrew Hallam is the index investor for Strategy Lab. Globe Unlimited subscribers can view his model portfolio here and read more in the series online here.

It's the ugly stain on the investment floor. We just pretend not to see it. Canadian stocks have averaged just 4.46 per cent over the past 15 years, according to Morningstar. Even bonds did better. The Canadian fixed income index averaged 4.78 per cent.

This wasn't supposed to happen. Stocks are supposed to beat bonds. But stocks stumbled south of the border too. Despite a strong six-year run (2009-2015), U.S. stocks have disappointed since July, 2000. The S&P 500 averaged 4.38 per cent in U.S. dollars. Barclay's U.S. aggregate bond index averaged 5.36 per cent per year.

Stocks do beat bonds, over the long run. But patience is needed. Longer time periods are best. When it comes to investing, 10 years is a flash; 20 years is a blip; 30 years might be a hiccup.

This is why Meb Faber's book, Global Asset Allocation, makes essential bathroom reading. Mr. Faber, the co-founder and chief investment officer of Cambria Investment Management, says that any of the world's asset classes could crash, burn or languish for years. He cites U.S. stocks in the late 1920s and early 1930s; German asset classes in the 1940s; U.S. real estate in the mid 1950s; Japanese stocks in the late 1990s.

Even stocks that promise to hit home runs can get stuck on the bench. For example, when the Chinese stock market opened to foreigners in 1993, it was poised as a top draft pick. But 20 years later, inflation had whipped it. Between 1993 and 2013, Chinese stocks averaged less than 1 per cent annually.

Mr. Faber says that building and rebalancing a globally diversified portfolio is the best solution because nobody can pick which asset class or country stock market will soar or suffer in the decades ahead. Putting too much money in our home country markets, he says, compounds risk. "Canadian investors put around 65 per cent of their stock allocation in their home market," says Mr. Faber. "This is called the 'home country bias.' In reality, Canadians should have about 5 per cent of their stock allocation in Canada."

Mr. Faber doesn't pull that 5 per cent out of the air. It represents something close to the TSX composite's global market capitalization. In other words, Canadian stocks make up less than 5 per cent of the world's total stock market value. Owning more than 5 per cent in Canadian stocks, he says, puts too many eggs in a single basket. If Canadian stocks perform like China's (never say never), retirements could suffer.

Instead, Mr. Faber recommends diversifying stock market assets based on each country's global capitalization. That's an easy task. The iShares Core MSCI All Country World ex Canada Index ETF (XAW) provides such a weighting. It contains U.S. stocks and international stocks – including those of emerging markets. By adding a Canadian stock market index, like the iShares Core S&P/TSX Index ETF (XIC) investors get the kind of stock market exposure that Mr. Faber likes.

For bond market diversification, investors could include international and domestic bonds. Vanguard's Global ex U.S. Aggregate Bond Index ETF (VBG) is a great place to start. It gives exposure to bonds outside North America.

Vanguard's U.S. Aggregate Bond Index ETF (VBU) is a fine choice for U.S. bonds. And Vanguard's Canadian Aggregate Bond Index ETF (VAB) contains a smorgasbord of Canadian bonds.

Real estate income trusts offer further diversification. Investors could buy the iShares Global Real Estate Index ETF (CGR). It contains international and Canadian REITs.

Rounding out a portfolio, the iShares Gold Bullion ETF (CGL.C) tracks the price of physical gold.

Mr. Faber says we could diversify into other asset classes as well. More important, we should ignore market forecasts. There's no magic pill for the ultimate allocation. But we should diversify, rebalance and keep costs low. It could protect our money from an asset class meltdown or a lame long-term run.