Expert strategist Jim Paulsen warns portfolios are becoming much riskier — what Canadians should know about diversifying

That means Canadians who stick close to home avoid the AI concentration risk rattling U.S. markets — but they trade it for a different one. The Canadian market’s reliance on banks, miners and oil and gas producers leaves it vulnerable to interest rate swings and commodity price shocks instead.

This is part of why Canadian investors have historically kept a heavy “home bias” toward domestic stocks. Prior to 2005, the Income Tax Act limited how much foreign content Canadians could hold inside an RRSP, but that cap was eliminated more than two decades ago, and there’s no longer any regulatory reason to avoid international diversification.

Even so, many Canadian portfolios remain tilted toward the TSX Composite — one recent analysis found the top 10 Canadian holdings make up almost 37% of the domestic equity market. That means a “Canadian-only” portfolio can be just as concentrated as an all-in tech bet, only in different sectors.

How Canadians can position more defensively

If you don’t want to lean too heavily into the AI boom on either side of the border, there are a few ways to build in some stability:

• Diversify into non-tech sectors. In Canada, that means looking at utilities, consumer staples and financials — sectors that historically hold up during downturns. The BMO Low Volatility Canadian Equity ETF (TSX:ZLB), for example, leans toward financials, utilities and consumer staples, with the former making up about 26%, while the other two each make up roughly 17% of its portfolio as of June 2026, a much larger share than either sector carries in the broader TSX Composite.
• Look outside Canada’s borders. Since Canadian equities make up a small slice of global stock markets, a global fund that spreads exposure beyond U.S. tech mega-caps, or an equal-weighted U.S. fund, can help smooth out concentration risk without abandoning growth entirely.
• Watch your sector and position caps. A common rule of thumb is capping any single sector at about 25% of your portfolio and any single stock at about 5%, and keeping 15% to 20% of your holdings outside your home country.
• Remember that “safe” sectors can carry indirect AI exposure. Real estate (particularly data centre, office and retail real estate investment trusts), industrials, materials and financials all have ties to the AI buildout, even if they aren’t traditional tech plays.

Next steps: Lessons for your own portfolio

You don’t need to predict when — or if — the AI trade unwinds to take a few sensible steps now:

• Check your overlap. If you hold a TSX Composite fund, an S&P 500 fund and a handful of individual tech stocks, you may be more concentrated than you realize. Many discount brokerages and portfolio-tracking tools can show you your combined sector weightings.
• Rebalance on a schedule, not a headline. Set a regular time, such as once or twice a year, to bring your portfolio back to its target sector and geography mix, rather than reacting to every market swing.
• Use the accounts you already have. Since the RRSP foreign-content limit no longer exists, there’s no tax-related reason to keep a Canadian-only RRSP or TFSA. You can build a diversified mix of Canadian, U.S. and international holdings entirely within your existing registered accounts.
• Talk to a professional before making big changes. A licensed financial advisor can help you assess how much risk makes sense for your timeline and goals. Always do your research, and remember: This article isn’t meant as a substitute for personalized investment, tax or legal advice.