Regardless of whether you follow an aggressive or conservative investing approach, we continue to recommend that you own shares of at least two of Canada’s big-five banks — Bank of Montreal, Royal Bank, CIBC, TD Bank and Bank of Nova Scotia.

However, banks shouldn’t be the extent of your Canadian financial holdings. To increase your profits and cut your risk, it is also essential to diversify your holdings within each economic sector — including Canadian finance. Other types of financial investments, such as non-bank financial companies, should also play a role in your portfolio.

High-quality non-bank financials could be big winners in the ongoing recovery

Non-bank financial companies include property and casualty insurance companies, mutual fund companies, wealth-management companies, mortgage lenders and more. They also include life-insurance companies, like Great-West Lifeco (symbol GWO on Toronto).We’ve updated our buy/sell/hold advice on this conservative investing stock in the latest issue of The Successful Investor. Read on for full details.

The 2008/2009 stock-market crash and tight credit markets were particularly hard on many Canadian life-insurance stocks. That’s because insurers use gains on their bond and stock holdings to cover future claims and make up underwriting losses. As a result, many insurance firms suffered as the values of these securities fell.

However, for that same reason, many insurers have made significant gains as markets have recovered, pushing up the value of their bond and stock holdings. As well, they are taking fewer writedowns on bonds and mortgage-backed securities because of improving credit markets.

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Non-bank financial companies, including life insurers, tend to be more volatile than the big-five banks. To cut your risk, we recommend that you stick with firms that are leaders in their niche fields, and offer strong growth prospects as the economy continues to recover.

This conservative investing stock’s diversification helps cut its risk

In a just-published issue of The Successful Investor, we updated our buy/sell/hold advice on a life insurer that would be suitable for conservative investing: Great-West Lifeco (symbol GWO).

Great-West is Canada’s largest insurance company, with $460.2 billion of assets under management. That’s up 4.1% in the past year.

The company’s broad diversification helps cut its risk and adds to its conservative investing appeal: Aside from insurance, Great-West sells retirement-planning and wealth-management services.

Canada accounts for 55% of the company’s earnings, followed by Europe (33%) and the U.S. (12%).

In the three months ended June 30, 2010, Great-West’s earnings rose 4.8% from a year earlier. The gain came despite the higher Canadian dollar, which hurt contributions from the company’s U.S. and European operations. However, revenue fell because Great-West saw fewer gains on the value of its trading portfolio.

Dividend competitive with big-five banks

As an added plus for conservative investing, Great-West’s quarterly dividend payment of $0.31 yields a high 5% on an annualized basis. That’s comparable to Canada’s big-five banks.

You can get our full analysis of Great-West Lifeco, including clear buy/sell/hold advice, in the latest issue of The Successful Investor. What’s more, you can get this just-published issue absolutely free when you subscribe today. Click here to learn how.