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Diversification is one of the best ways to help manage risk and volatility in your investment portfolio.
A simpler way to think about diversification is not putting all of your eggs in one basket. As an investor, portfolio diversification generally means spreading your money across a mix of different asset classes (like stocks, bonds, and cash) and geographies. Each investor is unique and will likely have a different asset mix that matches their investment goals to align with how much risk they’re comfortable with.
Many ways to diversify
Above list is not exhaustive, for illustrative purposes only.
Different types of investments perform in different ways over time. When some rise in value, others may decrease or maintain their value. The concept of “correlation” measures the relationship between variables and is used by many portfolio managers and investors to select components of a portfolio that don’t generally behave in the same way at the same time. For example, when markets become uncertain due to an economic factor, equities may be seen as riskier and go down in value compared to cash-like investments. By diversifying, the goal is to get a smoother ride that is less volatile.
How much of your portfolio should you invest in each asset class?
The answer depends on your personal situation, risk tolerance, and your preferences as an investor. For example:
It’s important to answer these questions before you decide what to invest in. There are several ways to figure out how you should invest, including tools and questionnaires. Or if you have an advisor, they can help guide you.
A diversified portfolio can help reduce risk over time
Data Source: Morningstar Direct as of March 31, 2025. The "US Equity" is S&P 500. The "Diversified Portfolio" is proxied by 40% FTSE Canada Universe Bond, 15% S&P/TSX Capped Composite, and 45% MSCI ACWI. Showing historical range of annualized returns Jan 1, 1995 to March 31, 2025. Returns are calculated in Canadian dollars.
Remember, at a given time, any one asset class, region, sector, or style may lead the market while others lag. But in a diversified portfolio, a decline in one investment may be offset by growth in another. By building a diversified portfolio, you can help to limit the downside without giving up all of the upside. The chart shows market returns for an all-U.S. equity portfolio compared to a diversified portfolio over one, five, and 10-year periods. Notice that the longer you stay invested in the diversified portfolio, the less likely you would have been to experience a negative total return.
Sun Life Global Investments offers both individual equity and bond funds for those who prefer to build their own portfolios, or balanced, diversified, and managed solutions that combine many of the asset classes mentioned here.
For more information, speak to your advisor.
This content is provided for information and illustrative purposes only and is not intended to provide specific financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard and does not constitute a specific offer to buy and/or sell securities.
Information contained in this document has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.
SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund’s prospectus. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Sun Life Assurance Company of Canada is the issuer of accumulation annuities (insurance GICs), payout annuities and individual variable annuity contracts (segregated fund contracts). Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Sun Life Financial Trust Inc. is the issuer of guaranteed investment certificates.
Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. all of which are members of the Sun Life group of companies.
