How to setup the perfect diversified portfolio: Part III

In part I and part II, we looked at the basics of setting up a diversified portfolio, across different asset classes, and some of the securities trading on the ASX that you could use to replicate the balanced portfolio.

In part III, we’ll look at the options for the remaining asset classes, fixed interest, infrastructure, Australian shares, and international shares.

Fixed Interest

Income securities offer virtually as many options as equities or shares. Here’s my pick to replicate this asset class. I’d go for a combination of a number of bond exchange traded funds (ETFs), including Russell Australian Government Bond ETF (ASX: RGB), Russell Australian Semi-Government Bond ETF (ASX: RSM), Russell Australian Corporate Bond ETF (ASX: RCB) or SPDR Bond ETF units (ASX: BOND). Unfortunately, there’s no ASX ETF which gives investors to any international fixed interest – although there are plenty on offshore exchanges.


Now infrastructure usually means the managed fund has invested directly into owning infrastructure assets such as toll roads, airports, pipelines or power and energy assets. Retail investors could simply allocate this portfolio of their portfolio to infrastructure stocks which own those types of assets, such as Sydney Airport Holdings Ltd (ASX: SYD) – which unsurprisingly owns Sydney Airport, toll road owner Transurban Group (ASX: TCL) and pipeline owner, APA Group (ASX: APA).

Australian Shares

With more than 2,000 shares listed on the ASX, it can be hard to decide how many and which companies to own. Alternatively, you could consider investing in an ETF that tracks an index such as the SPDR S&P/ASX 200 Fund (ASX: STW), which owns every stock in the underlying index, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). The ASX 200 represents Australia’s top 200 stocks and covers around 80% of the whole market.

There are also other options such as ETFs covering specific sectors, as well as listed investment companies like Argo Investments Limited (ASX: ARG) and Australian Foundation Investment Co.Ltd. (ASX: AFI), which invest in many companies listed on the ASX.

If you want individual stocks, we might be biased, but we think Motley Fool Share Advisor is the perfect place to start.

International Shares

Here retail investors have several options. You could go for the ISGL100ETF CDI 1:1 (ASX: IOO) which is the iShares Global Top 100 companies index. Or a combination of VWORLDXUS CDI 1:1 (ASX: VEU) which is Vanguard’s All-World ex-US Shares Index ETF covering 2,360 companies in 46 countries (excluding the US) and VUSTOTAL CDI 1:1 (ASX: VTS), which is Vanguard’s US Total Market Shares Index ETF covering the whole US market. There are also LICs on the ASX which invest offshore, such as Platinum Capital Limited (ASX: PMC).

Like Australian shares, if you want individual stock picks, Share Advisor also offers one US recommendation every month as a bonus stock pick.

In Part IV, I’ll construct an example portfolio using the securities mentioned above to give you an overall picture. Stay tuned.

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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.

Motley Fool writer/analyst Mike King owns shares in Sydney Airport, Vanguard's All-World Ex-US ETF and Vanguard's US Total Market Shares ETF. You can follow Mike on Twitter @TMFKinga

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