MENU

Is Your Portfolio Diversified?

Diversification is the closest thing to a free lunch in investing. It’s a simple idea. Invest in a variety of shares such that the investments have little correlation to each other. Doing so should help smooth out some volatility.

Although diversification is a simple concept, its implementation requires some thought, and it’s easy to fall into the trap of holding a larger number of holdings without getting much material diversification. For instance, if you own shares in Telstra Corporation Ltd (ASX:TLS), TPG Telecom (ASX:TPM), and Vocus Group Ltd (ASX:VOC), you don’t get significant diversification. Yes, you do get diversification from company-specific risks, but there’s no hiding from industry-wide challenges.

Broadly speaking, you want to consider both systemic and non-systemic risks.

Systemic risks are non-company-specific hazards. These affect many companies in an economy. Recession, inflation, deflation, war, and natural calamity are examples.

Company or industry specific uncertainty is called non-systemic. A fire at a company’s factory, regulatory risks, and breaking debt covenants, to name some, belong to this category.

One approach to building a diversified portfolio to consider is to find your favourite ASX listed companies across many different industries. Including businesses from a variety of industries should help minimise your non-systemic risk.

But how do you shield yourself from a systemic risk such as a recession? Just because we haven’t had one in Australia for a long time doesn’t mean we will never see one! I ‘m not saying there’s a recession around the corner, but just talking about strategies to deal with one if and when it arrives.

One way to balance a national recession would be to have exposure to international shares. Holding global behemoths like Alphabet Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), or Apple Inc.  (NASDAQ:AAPL), provides exposure to some of the biggest and best-run enterprises in the world. And as a bonus you get access to global earnings and get to capitalise on some of the major technology trends: artificial intelligence, machine learning, cloud computing, mobile ecosystems, and online commerce, to name just a few.

For some investors though, opening an international brokerage account is a hassle. Sometimes the paperwork comes in the way. I think it is a worthwhile pursuit and global investing, significantly, expands your investable universe. However, if international investing is not your cup of tea, then I have a few alternatives for you to consider.

You can consider investing in an exchange traded fund on the ASX that provides exposure to international equities. If that’s something that piques your interest, I would suggest looking at the following: Morningstar Global Technology ETF (ASX:TECH), Betashares NASDAQ 100 (ASX:NDQ), iShares Global 100 ETF (ASX:IOO), and iShares S&P 500 (ASX:IVV).

And finally, I would suggest looking at the international revenue component of ASX-listed companies. Several of them generate substantial portions of their income from overseas. I suggest adding Aconex Ltd (ASX:ACX), Corporate Travel Management Ltd (ASX:CTD), and ResMed Inc. (CHESS) (ASX:RMD) to your watchlist.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

The Motley Fool Australia owns shares of Alphabet (C shares), Amazon, and Apple. Anirban Mahanti owns shares in Apple and Amazon.com. Anirban Mahanti is short Jan 2019 $115 puts on Apple. The Motley Fool Australia owns shares of ACONEX FPO, Corporate Travel Management Limited, Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.