Diversification and our Loonie

After months of watching a surging loonie, many investors have asked me if the Canadian dollar is finished its rally. In the short term, we may see dollar volatility, but I believe the long term trend still favors the loonie. Canada features a good balance sheet, abundant energy and resources, and stable financial markets. This is likely to attract global investment for years to come, and should keep wind in the loonies' sails. As a Canadian investor, this has a dramatic impact on diversification. For years, our currency's devaluation has significantly boosted foreign market returns in Canadian dollar terms. Global investment returns are likely to be dragged lower by the strengthening dollar, so you may wish to discuss investment alternatives that hedge out this currency risk with your advisor. Diversification is still very important, but you need to adjust for the new, robust Canadian currency.