3 ways to instantly diversify your portfolio

Don't put all your eggs in one basket...

The current climate of rising interest rates, increased volatility and technological disruption makes it hard to know where to invest.

I think diversification is key for portfolios to succeed these days. It’s no good having most of a portfolio allocated to the same four big four stocks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Here are three shares I’d buy to diversify my portfolio:

Xero Limited (ASX: XRO)

Xero is one of the companies actually doing the disrupting in the accounting software industry. It’s an online-only cloud provider of accounting software for business owners and accountants.

It has truly dominated the industry in New Zealand and is the number one cloud player in Australia. It’s heavily marketing in the UK to grow there too.

Xero is one of those businesses that can justify its premium because how high its gross profit margin is. It has already developed most of the software, so a lot of the extra revenue just adds to the profit line.

If Xero can become the number one cloud provider in the UK then today’s price could seem cheap.

Greencross Limited (ASX: GXL)

Greencross is the leading pet business in Australia and New Zealand with its Greencross pet and Petbarn networks.

I’d say that Greencross is the one doing the disrupting in the industry because it’s estimated that that are over 2,500 independent vets in the region and Greencross is the one that’s changing how the industry operates.

Its co-location strategy of putting a Greencross vet inside a Petbarn is smart because it allows both businesses to cross-sell to each other and saves on costs. This is likely to give people a bigger reason to visit the combined business over an independent vet.

Bapcor Ltd (ASX: BAP)

Bapcor faces trouble supposedly from all sides with Amazon coming and electric vehicles likely to change things up. However, electric vehicles will still require parts to be replaced. Bapcor has the potential to be the obvious choice for all customers, like Bunnings is, if it can offer the lowest prices whilst benefiting from its economies of scale.

In the meantime, electric vehicles make up very little of the car numbers on the road and Bapcor could keep growing profit strongly as it expands into Asia too.

Foolish takeaway

I think all three shares would make very good long-term additions to a portfolio at the current prices and should quite comfortably outperform the market.

If you wan even more ideas to diversify your portfolio you should read this.

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Motley Fool contributor Tristan Harrison owns shares of Bapcor and Greencross Limited. The Motley Fool Australia owns shares of and has recommended Bapcor and Greencross Limited. The Motley Fool Australia owns shares of National Australia Bank Limited and Xero. 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.

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