Australia is one of the richest countries in the world. However, diversification is not utilised by a lot of ASX investors. Most people have a lot of their wealth tied up in one or a handful of properties plus bank shares.
Therefore, I think it's very important for every investor to diversify away from these two areas.
Here are three ideas to do that:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
One of the best ways to get diversification is to choose an investment which itself is diversified. Soul Patts is an investment conglomerate that takes major stakes in a variety of businesses including TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW) and Palla Pharma Ltd (ASX: PAL). Just these three shares alone are completely different from each other.
It has been successfully investing and beating the market for many decades, it continues to increase the diversification of its own portfolio by investing into long-term growth sectors like financial services and retirement villages.
Soul Patts tries to be a conservative, contrarian investor which would offer different returns to many economy-based investments.
As a bonus, Soul Patts has increased its dividend every year since 2000. Soul Patts has a grossed-up dividend yield of 3.9%.
Duxton Water Ltd (ASX: D2O)
This company is unique, it owns water entitlements and leases them out to agricultural businesses.
As you can imagine, the value of water has gone up with the drought in regional Australia which has benefited Duxton Water. The company is trying to sign longer-term leases which would be good for reliable cashflow. It's also trying to steadily grow its dividend for shareholders.
In a wet year water prices would very likely fall, but long-term demand for water is growing due to a rising population and because of high value, high water usage crops like almonds.
Duxton Water has a grossed-up dividend yield of 5.4%.
WAM Microcap Limited (ASX: WMI)
If you invest in an ASX index or index-like investment then you get a lot of exposure to resource businesses and banks.
But when you look further down the market capitalisation list you can find a number of exciting unknown opportunities. The investment team at WAM Microcap have proven very adept at identifying those mispriced shares, which is how it has been able to produce gross portfolio returns of an average of 23.7% per year before fees and expenses.
The ordinary dividends and special dividends are flowing to shareholders to ensure that WAM Microcap stays at an optimal size for small cap investing.
It currently has a grossed-up ordinary dividend yield of 4.2%.
Foolish takeaway
Each of these three shares have the potential to offer good and very different returns to the main ASX index. At the current prices I'd go for Soul Patts, its share price has fallen a lot since going ex-dividend and looks better long-term value.
