Australia is one of the richest countries in the world. However, diversification is not utilised by a lot of Australian investors. Most people have a lot of their wealth tied up in one or a handful of properties plus bank shares. Arguably, the bank shares are also heavily linked to the property market.
Therefore, I think it’s very important for every investor to diversify away from these two areas.
Here are three ideas to do that:
Naos Emerging Opportunities Company Ltd (ASX: NCC)
My three ideas all involve investing your money in shares that offer diversification within themselves.
A friend once said to me that he would only consider investing with a manager if that fund invested in small caps. Naos is one fund manager that has a track record for longish-term returns with small caps.
This listed investment company (LIC) invests in businesses with market capitalisations under $250 million. This is where some of biggest returns are hiding if you (or the manager) can find them. Over the past five years its portfolio has returned an average of 14.92% per annum before fees but after expenses.
At the end of FY18 it reported that its portfolio had nine positions. That may seem like a small number but they are high-conviction ideas and it’s better diversified than holding shares of one individual business.
BETANASDAQ ETF UNITS (ASX: NDQ)
This exchanged-traded fund (ETF) offers investors exposure to some of the world’s biggest technology companies which are listed in the US.
Some of its top holdings include Apple, Alphabet (Google), Amazon, Facebook and Microsoft. These businesses are likely to continue to be winners from the shift to technology in both the corporate world and how we live our lives.
I believe every investor should have at least some of their portfolio dedicated to the world’s global tech stocks as most of the ones I mentioned above are trading at good value for the profit growth on offer.
WAM Leaders Ltd (ASX: WLE)
If you want to keep things relatively simple and stick to Australia’s ASX 200 blue chips but you’re not sure what to invest in, then WAM Leaders could be the right choice.
It’s a LIC that sticks to the larger businesses on the ASX, yet it managed to deliver a portfolio return of 17.8% for FY18 before fees and outperform the S&P/ASX 200 Accumulation Index by 4.8%.
I thought this was an impressive return considering some of its largest holdings at 30 May 2018 included Commonwealth Bank of Australia (ASX: CBA), BHP Billiton Limited (ASX: BHP), Westpac Banking Corp (ASX: WBC) and several of the other top ASX 20 shares.
At the current prices I think I would be happy to buy all three shares. However, I’d be more inclined to go for the two LICs because several tech shares like Amazon and Netflix are perhaps trading too expensively for the actual bottom line profits (or losses) they produce.
However, I can understand if readers want to find the best stocks themselves and avoid the fees. These top shares could be exactly what your portfolio needs for growth.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. 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 Scott Phillips.