On Wall Street, it's known as the "only free lunch" for investors. It will help you maintain a better long-term average return for your investments and may shield you from some unwanted stock market turbulence.
It's diversification, a one-word solution to a wide investor problem. In a recent international survey of investors with over US$1.5 million in investable assets, the number-one investing mistake respondents gave was not diversifying their portfolio enough.
You don't need 30, 50 or 100 stocks to be diversified. Actually, having that many may dilute potential gains and would be too hard to track all those companies' performance.
Five stocks could be adequate- as long as the stocks themselves are in different industries. Also, having a mix of income (dividend) stocks, blue-chips and fast growers can keep overall returns healthier. It's like a Swiss Army knife with just the blades that you really use.
Here are four stocks that could round your portfolio out and get you on the path towards better investing.
— Commonwealth Bank of Australia (ASX: CBA)
The largest bank in Australia and biggest ASX-listed stock by market capitalisation, this is a dividend stock to keep a steady income flow to your portfolio. It has a 4.6% dividend yield and its past 10-year average annual dividend growth rate is about 8%, so that shows stability.
— Insurance Australia Group Limited (ASX: IAG)
This insurer operates the NRMA and CGU brands regularly seen on TV, as well as others like SGIO. It could be another dividend stock for income. It offers a delightful 6.1% yield. As the market leader in general insurance, it has staying power to earn and grow from here.
— CSL Limited (ASX: CSL)
Healthcare companies have a great demand for their services. CSL is a biopharmaceutical company that could be the fast grower of the group. It has a long track record for double digit growth in revenue, earnings and dividends. Its dividend yield is 1.7%, but the real emphasis here is the growth.
— Telstra Corporation Ltd (ASX: TLS)
The telecom giant has been hitting multi-year highs recently, but the next stage of its growth and earning power is just starting. With international expansion and the National Broadband Network roll-out, the company plans to become a bigger regional player in Asia for digital communications and enterprise solutions. In the meantime, it is offering a fully franked 5.4% yield, so you can have a good income earner right now.
