Diversification is one of the key aspects to creating a strong portfolio. In good times, such as now, a rising tide helps every share on the market.
However, when the market starts trading flatly or even goes backwards it will become apparent how important it is to have a group of strong and diverse shares.
Here are four shares that would diversify a portfolio very well:
Domain Holdings Australia Limited (ASX: DHG)
Domain is the owner of the second largest property website in Australia, Domain.com.au. It's also rated as having the best property app for your phone.
Property market experts would attest to how important it is to attract every single potential buyer you can get for a property. It only takes two interested parties to create a bidding war.
I think Domain will continue to grow its earnings well over the coming years as it charges more for each property ad. The amount charged is so minor compared to the overall cost of selling a home that property owners will be happy to pay a bit more.
I'll be very interested to see how well (or not) Domain report next month.
Bapcor Ltd (ASX: BAP)
I don't think that many investors will have exposure to the car sector of Australia. Bapcor is a good way to diversify into this area because it's the leading car parts business of Australia.
In some ways, Bapcor could have quite defensive earnings because in a downturn people will want to make their car last longer and therefore would rather pay for an extra car part than a new car.
Challenger Ltd (ASX: CGF)
Challenger is the leading annuity provider of Australia. The reason why I think this is such a good stock is that Challenger's main end-client is the retiree population of Australia who are looking for a guaranteed source of income from their hard-earned capital.
The number of people over 65 is predicted to grow by 75% over the next two decades, which could be a large boost to the amount of money pouring into annuities, particularly when combined with the superannuation pool growing.
Challenger is a very different finance business compared to the big banks and should be able to grow in any market. An annuity would appear more attractive if there was a stock market crash.
Ramsay Health Care Limited (ASX: RHC)
Ramsay is one of Australia's premier healthcare shares. It is a leading private hospital operator which should also benefit from Australia's ageing population.
The older we become the more likely we are to need to visit a hospital. There will be many baby boomers out there with private health insurance who want to be treated at the best hospitals in the future and Ramsay operates some of those hospitals, which is why it could see increased patient numbers over the coming years.
Foolish takeaway
I think all four shares are a great way to diversify your portfolio, which is why I'm a shareholder in three of them and will gladly invest in Domain shares at the right price in the future.
