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Diversifying to reduce risk is a key investment strategy. The reason: not all investments will perform in the same way at the same time. By holding a mix of bonds and equities across different markets and countries, some may be increasing in value while others are falling. This can help reduce the risk that comes from being overly concentrated in just a few investments. And over time, it tends to reduce volatility and smooth out returns.

Use the chart below to see how being diversified can help reduce risk

Pick an asset class from the boxes below and follow it across. As it reacts to market and economic conditions, the asset class may be a top performer one year and the worst the next. Now compare it to a hypothetical diversified portfolio*, which invests in a number of asset classes, and you will see the returns are less volatile and more consistent over time.

The table is a series of coloured boxes with percentages in each box. The highest percentage is at the top and the lowest is at the bottom. There are columns labelled for each year from 2010 to 2021. There are eleven rows with coloured boxes below each year. Each colour represents a different asset class. The asset classes are: A diversified portfolio*; Canadian equity; U.S. equity; International equity, Emerging markets equity, Global equity, Real estate, Infrastructure, Canadian bonds, U.S. bonds, Global bonds. The box closest to the top represents the best performing asset class for that year, and the bottom represents the worst performing asset class. Through the approximate middle of the table are white boxes showing a diversified portfolio. The diversified portfolio helps to show a smoother return pattern than other asset classes over time, helping to illustrate the benefits of diversification by asset class. In 2010: 9% return – 5th row (one spot above centre) In 2011: -1% return – 6th row (exact centre) In 2012: 13% return – 6th row (exact centre) In 2013: 18% return – 5th row (one spot above centre) In 2014: 14% return – 6th row (exact centre) In 2015: 10% return – 5th row (one spot above centre) In 2016: 6% return – 5th row (one spot above centre) In 2017: 12% return – 5th row.In 2018: -2% return – 7th row (one row below centre) In 2019: 17% return – 5th row (one spot above centre). In 2020: 7% return – 7th row (one spot above centre). In 2021: 12% return (5th row from top).

For illustrative purposes only. Returns have been rounded to the nearest whole number for simplicity. *The Diversified portfolio is a hypothetical portfolio that is invested as a 60/40 mix of MSCI ACWI All Cap GR USD (60%) and BBgBarc Global Aggregate TR Hdg CAD (40%). The Diversified Portfolio is not intended to represent any investment managed by Sun Life Global Investments. It is not possible to invest in an index. For more information on the indices used to represent each asset class, please see reverse.

At Sun Life Global Investments, we believe long-term investment success requires effective risk management, and diversification plays a powerful role in that strategy.

For more information, speak to your advisor.

ABOUT THE CHART

Equity returns are represented by the following indices in C$ terms and include reinvestment of dividends: U.S. stocks: S&P 500 Total Return Index; Canadian stocks: S&P/TSX Capped Composite Total Return Index; International stocks: MSCI EAFE NR Index; Emerging market stocks: MSCI EM Net Return Index; Global stocks: MSCI World Net Return Index; Real estate: FTSE EPRA/NAREIT Developed Total Return Index; Infrastructure: S&P Global Infrastructure Total Return Index; Canadian bonds: FTSE Canada Universe Total Return Index; U.S. bonds: Bloomberg U.S. Aggregate Total Return Hedged Index; Global bonds: Bloomberg Global Aggregate Total Return Index. The performance of each index including the diversified portfolio is provided to illustrate historical market trends; it does not represent the performance of a particular Sun Life Global Investments product. Source: Morningstar. Data as of December 31, 2024.

The information provided is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly, and action is taken based on the latest available information. Views expressed regarding a particular company, security, industry or market sector are the views of the writer and should not be considered an indication of trading intent of any investment funds managed by SLGI Asset Management Inc. These views are subject to change at any time and are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.