I must be among the last persons on Planet Earth not to hear of Randy Pausch, the professor who passed away over the weekend and delivered a “last lecture” on achieving our childhood dreams. A colleague at work recommended watching the video and I’m glad I did. It is 76 minutes long and in it, the professor reminds us of the things that are truly important in our lives but are so easily forgotten in the hustle of everyday life. If, like me, you’ve missed the entire phenomenon, the video is available here.

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  1. For 1900-2006 for 17 developed countries that constitute almost 90% of the 2006 world stock market, real return on average was 5.8%. For Canada, it was 6.3%; for the USA, it was 6.6%. Canada ranked 5 out of the 17. For real return on bonds, it ranked 4 out of the 17. There were 5 countries that had negative real returns on bonds. Best return in stocks was Sweden; for bonds, it was Denmark. The relevant link for this data is http://www.london.edu/assets/documents/PDF/Global_Investment_Returns_Yearbook_2007_(Synopsis).pdf

    My first point is that one should invest outside Canada for decreased risk through less volatility. I’m not convinced that one will increase returns significantly by investing outside Canada. This is especially true if one considers the preferential tax treatment for Canadian dividends. My second point is that one has to be very careful when it comes to taxes and expenses in bonds. Otherwise, you will get a low, or even negative, return.

    If one should invest outside Canada for diversification, what percentage of your stock portfolio should you invest? Below, I give three relevant links. My interpretation is that a 40% Canadian 60% nonCanadian mix is appropriate.

    Comments are most welcome.

    http://www.leithwheeler.com/pdf/LeithWheelerQ22005Outlook.pdf
    http://www.mutualfundreporter.com/foreign/
    http://mutualfunds.yahoo.ca/funds/invest.html

  2. While his “last lecture” was his most famous, Randy Pausch apparently was most proud of his Time Management lecture, which is available here and worth watching:

    http://video.google.com/videoplay?docid=-5784740380335567758

  3. Canadian Capitalist

    Brad: Thanks for the link. I’ll check out the time management talk.

  4. Canadian Capitalist

    Doug: I discussed some of the points in an earlier post:

    http://www.canadiancapitalist.com/2007/08/26/reader-query-on-asset-allocation

    My own Canadian equity allocation is 20% of the total portfolio or about 30% of the equity portion. I don’t have a good rationale for that exact number but as most of our portfolios are in RRSP accounts, favourable tax treatment of dividends isn’t a huge concern.

    Thanks for the link to global returns. I’m reading “Triumph of the Optimists” by the same authors and it is nice to have updated data.

    There is one problem with investing most of the equity portfolio in Canada, unless an investor is willing to engage in active management: our market is concentrated in Financials and Resources. I agree with your comment on bonds: they should be held in tax-deferred accounts and expenses should be kept as low as possible.

    I don’t think any conclusion can be drawn one way or another about whether Canadian stocks will be a better place to be than foreign ones in the future based on past returns. In “The Smartest Investment Book You’ll Ever Need”, Dan Solin recommends 10% of equities in Canadian stocks based on 25-year returns to 2000. The TSX returned 13.7% with a SD of 16.8 over that period. But a mixture of 80% MSCI World and 20% TSX returned 16.7% with a SD of 13.2%.

  5. You aren’t the only person CC. I just “discovered” Randy Pausch’s last lecture late Monday night, and watched it yesterday. Very inspirational.

    Tonight I plan on watching his Time Management lecture. Hopefully it will prove just as useful.

  6. I must have been living under the same rock as you; I didn’t hear about the last lecture until another blogger mentioned it this past friday. Its a great lecture and thanks to the commenter who left the link to the time management lecture – I’m looking forward to it.

  7. His life was full of fun and excitement. I feel sorry for the wife and kids, sometime life is unfair. I really enjoyed watching both of his lectures, highly recommended.

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  9. Thanks for the link CC.
    Great lecture!

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