HOW DIVERSIFIED ARE YOU?

My RRSP portfolio is composed of exchange traded funds (ETFs) that replicate the returns of the TSX composite index, the S&P 500, Morgan Stanley's Europe, Australasia and Far East index (EAFE), and a short term bond index. I hold all these funds with the aim of building a global diversified portfolio. Unfortunately, it turns out these holding are not bringing the diversification I hoped for.

An article in The Economist earlier this year highlighted that, over the past five years, international stock markets have shown a 95% correlation to the S&P 500. I just plotted the year-to-date performance of my ETFs and they all appear to be moving in tandem.

In short, although I have manged to build a low-cost global portfolio, I have some work to do when it comes to diversification.