In 2007, the total return of the S&P/TSX Composite Index was +9.8%. The MSCI World Index (in Canadian dollar terms) was -7.5%.

This divergence of returns means that if you’ve done nothing in the past year, Canadian equities are a larger part of your portfolio now than they were at the beginning of last year. And conversely, foreign equities are a much smaller portion.

While I don’t know what the markets are going to do in the coming year, let alone what the S&P/TSX’s fate will be, I find it hard to justify owning more Canadian today than I did a year ago. Likewise, with our dollar buying so much more outside our borders, it makes little sense to own fewer foreign stocks.

I’m not a proponent of making big swings in asset mix (i.e. “the market looks risky, I’m getting out”), but if you haven’t been adjusting along the way, it might be time to do some re-balancing. If you’re planning on contributing to your RRSP before the February 29th deadline, you should consider using that amount to bring your foreign content up relative to the rest of your holdings.

The thing to remember about re-balancing of this nature is that you’re not trying to time the market. You’re admitting you don’t know where it is going and are simply moving back to your best guess of what your ideal portfolio should be in the long run. If you’ve set out a long-term asset mix of 30% Canadian stocks, 30% foreign and 40% bonds, then that’s where you should be unless you have an informed view that an alternative allocation is better at this time. Even professionals have a mixed record betting against their long-term plan.