The U.S. election results demand some reflection about the United States and its place in the world, but not your investment portfolio.
A properly diversified portfolio includes significant exposure to U.S. stocks through all presidential administrations. And yet, now is an ideal time to assess your U.S. holdings to see if the fit is right.
The reason is the incredible recent performance of U.S. stocks, a phenomenon that can be summed up nicely in the 36.5-per-cent return for the S&P 500 for the 12 months to Oct. 31. U.S. stocks have outdone Canadian and international stocks, which means they may well occupy more space in your portfolio than you originally intended.
The right allocation to U.S. stocks varies widely, which tells you there’s no one correct number. So let’s look at how a few different investment products are weighting the U.S. market. We’ll use balanced portfolios, with a rough mix of 60-per-cent stocks and 40-per-cent bonds, as a point of comparison.
The roboadviser Justwealth’s global balanced growth portfolio has an overall 28-per-cent portfolio weighting in U.S. stocks, while Wealthsimple’s classic balanced portfolio has a U.S. equity weighting of 18.5 per cent.
Among asset allocation ETFs, the Vanguard Balanced ETF Portfolio (VBAL-T) has a 27.4-per-cent weighting in U.S. stocks, the iShares Core Balanced ETF Portfolio (XBAL-T) has 28.4 per cent in U.S. stocks, the Fidelity All-in-One Balanced ETF (FBAL-NE) has 30 per cent and the TD Balanced ETF Portfolio (TBAL-T) has 25 per cent.
Among mutual funds, the Mawer Balanced Fund has a 15.3 per cent U.S. equity weighting, while the massive RBC Select Balanced Portfolio has 25 per cent.
It’s tempting to let your winners run – why tamper with success? But markets that soar the most may fall the hardest. Rebalancing your U.S. exposure to get back to target levels protects you to some extent by rolling back any overexposure to that market.
Take whatever you remove from U.S. stocks and add it to whatever in your portfolio has fallen below your target. It seems a safe bet that this underrepresented asset is bonds.