Your instant 5-share diversified portfolio

Whether you’re investing a small amount or a family fortune, the theory behind diversification remains the same. Minimise risk and maximise returns. However for some advisors, diversification seems to be a get-out-of-jail-free card.

Warren Buffett, prominent investor and Chairman/CEO of Berkshire Hathaway  (NYSE: BRK.B), believes, “wide diversification is only required when investors do not understand what they are doing.”

The current state of the ASX exemplifies his thesis. For example, the biggest dividend stocks on the ASX have risen exponentially (up to 80%) in recent months, yet people are still buying them because they provide an opportunity for diversification across asset classes. Most of the blue-chip stocks on the ASX appear fully valued, so investors buying them might be putting their portfolio at more risk than they would if they bought ‘riskier’ stocks in the first instance.

However, one blue chip that remains well-priced to deliver future gains is Telstra (ASX: TLS). Investors could expect modest growth and a reliable dividend in coming years and if interest rates drop further, it’ll likely be a beneficiary of new money entering the market.

Coca-Cola Amatil (ASX: CCL) is a timeless company that sells products ingrained in western culture. Investors have recently sold down the stock because of its reduced short-term profit guidance, the high Australian dollar and increased competition between the supermarket giants, Coles and Woolworths. However it remains a great company and is moderately priced for long term investors.

Another well-priced dividend payer is Challenger (ASX: CGF). Challenger will give investors stable growth but, as part of its funds management division, it will benefit greatly from a bullish sharemarket. Challenger’s primary business is to provide retirees with financial security.

Oil and gas company Beach Energy (ASX: BPT) is another the market has overlooked. Beach has interests throughout the world but its number one operations are in the Cooper/Eromanga Basins here in Australia and the Williston Basin in the USA. It has a very healthy cash position and is forecasting growth of between 10% and 16% in FY14.

Finally, a diversified portfolio wouldn’t be complete without a smaller, high risk company. AtCor Medical (ASX: ACG) develops and markets its SphygmoCor system throughout the world. The system measures blood pressure and arterial stiffness non-invasively and made its first profit in FY13. With small-cap stocks, buying shares when they first begin to turn a profit can prove to be very lucrative. AtCor is up 153% in the past 12 months.

Want another great stock idea?

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Owen Raszkiewicz owns shares in Challenger and Beach Energy. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.