Your instant 5-share diversified portfolio

Macquarie Group Ltd (ASX:MQG) shares, Bapcor Ltd (ASX:BAP), TPG Telecom Ltd (ASX:TPM), Blackmores Limited (ASX:BKL) and Capilano Honey Ltd (ASX:CZZ) could diversify your portfolio.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of Macquarie Group Ltd (ASX: MQG), Bapcor Ltd (ASX: BAP), TPG Telecom Ltd (ASX: TPM), Blackmores Limited (ASX: BKL) and Capilano Honey Ltd (ASX: CZZ) could diversify your portfolio.

What is diversification?

Diversification is the idea that by combining your investments into a portfolio you can minimise the risk associated with the overall portfolio. The easiest way I can explain it is with the use of an example:

If you buy two factories both producing blue cheese, then, months later, blue cheese is found to cause disgusting body odour, your factories will be worth next to nothing. But if you bought one blue cheese factory and one camembert cheese factory, your downside is reduced.

The idea is to add investments that increase your return potential but reduce risk.

The same concept can be applied to a share portfolio (or any portfolio, for that matter). Instead of cheese factories, you can combine shares in a prudent way.

It's been shown that around 30 shares is enough to adequately remove most of the risk associated with a share portfolio (note: it will still have some risk, of course). I recently wrote about the concept in detail, here.

5 shares to diversify a portfolio

The mathematical concepts behind diversification can get a little confusing at times. But it comes down to spreading the risks yet keeping the upside potential. You can do that by buying shares in great companies operating across different industries, product groups, services, or geographies.

Here are five quite different ASX-listed businesses to consider.

Macquarie Group

Macquarie Group is a $30 billion investment bank. Unlike a standard retail bank such as National Australia Bank Ltd. (ASX: NAB) or Commonwealth Bank of Australia (ASX: CBA), Macquarie offers more corporate-style finance services like investment research and asset finance. By design, the bank's profits are subject to movements in financial markets. However, over the long-term, its returns have been impressive.

Bapcor

Formally Burson Group, Bapcor is the owner of Burson Auto Parts and Autobarn. Its products are delivered to some of the biggest franchise mechanics across Australia every day. Some analysts believe that because Burson offers products for aftermarket repairs, its shares have defensive qualities. Meaning, in a recession, people are less likely to buy a new car but repair their old vehicle. If that's true, Bapcor shares could offer some protection in a downturn.

TPG Telecom

TPG is a household name in Australian broadband. It is also pushing into mobiles and continues to make a significant investment in infrastructure assets, such as fibre cabling and an international expansion.

Blackmores

Blackmores is a consumer favourite. The company produces vitamins and infant formula, among other products. One of its core strategies is to crack the large Chinese consumer market.

Capilano Honey

The addition of Capilano to a portfolio with loads of shares in Blackmores probably wouldn't have the diversification benefits it otherwise could. However, Capilano is a smaller company operating in the somewhat niche honey market. Given management's track record and the long-term outlook for its business, I think it deserves a spot on watch lists.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask. The Motley Fool Australia owns shares of Bapcor and Capilano Honey 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »