One of the very first things they will teach you in economics is that there is no such thing as a free lunch. However, there is a slight exception to this rule if you ask a few investors on Wall Street.
According to a number of Wall Street legends, diversification is the only free lunch you will ever get in the investing world. By maintaining a diverse portfolio it should statistically reduce its risk, but not necessarily its returns.
If you had an equally-weighted portfolio filled with just Westpac Banking Corp (ASX: WBC) and the other big banks, then you would be sitting on a 12-month loss of almost 24%. But by diversifying your portfolio with a few quality shares from different industries, I believe you would have avoided such a decline.
This leads us onto three shares which I believe offer investors not just diversity, but also growth and income. I feel this trifecta should provide investors with strong returns over the next 12 months.
G8 Education Ltd (ASX: GEM)
Childcare operator G8 Education is a great example of a company that I believe is a great investment for both growth and income investors. The market expects that in FY 2016 it will pay an estimated fully franked 6.5% dividend, as well as grow its earnings by 12.5% over the next couple of years.
Thanks to sustained demand in the childcare industry the company has been able to grow its revenue now for nine consecutive years. I expect this will continue to be the case as the company continues its growth through acquisition strategy.
Macquarie Group Ltd (ASX: MQG)
Macquarie’s shares are down 23% year-to-date which not only makes this a potential bargain buy, it also means the shares provide a partially franked estimated dividend of 6% in FY 2016.
The company has shown that it is one of Australia’s best and most innovative financial services companies. Late last year the company introduced a robo-advice platform that many believe could be industry-changing. For a modest fee the average Australian can get computer-generated financial advice on demand.
Retail Food Group Limited (ASX: RFG)
The franchisor of a number of well-known brands such as Gloria Jeans and Donut King has been on fire this year. Retail Food Group delivered a great interim result which saw net profit after tax jump by 27% to $32 million.
The company generally pays out two-thirds of its earnings as dividends, which I believe is great news for shareholders. Its aggressive expansion plans means it is expected to grow earnings by 9% per year through to 2018. This should mean its fantastic estimated fully franked 5.5% dividend should continue growing for some time to come.
Additionally, as the three shares are from different industries I feel it should provide investors with a diverse portfolio which achieves the aim of lowering its overall risk.