The Australian stock market is a wonderful place to find assets that can grow our wealth and net worth. There are a few ASX shares that I believe can make very good long-term returns.
One of the most important things to know as a beginner is that diversification is a very powerful tool. It means not putting all of your investing eggs in one basket. This can help reduce the risks by spreading the investments across different industries, but good diversification doesn't necessarily reduce the returns on offer.
I'm going to talk about three quite different Australian stocks that could work together in a portfolio.
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Wesfarmers Ltd (ASX: WES)
Wesfarmers is one of my favourite businesses because of the diversification that it has in its own portfolio of different businesses. Some of the businesses include Bunnings, Kmart, Officeworks, Target, Priceline, InstantScripts, a chemicals, energy and fertiliser division called WesCEF, and an industrial and safety division.
Kmart and Bunnings are two of the most impressive retail businesses in Australia, offering customers significant value while also generating high returns for shareholders. Wesfarmers still has significant growth potential due to its expanding store count, Bunnings' ability to diversify into other segments, and Kmart's expansion of Anko products into international markets. I think it's an appealing idea to make one's first investment in a company we can see and interact with in real life.
I expect Wesfarmers to be a much more profitable Australian stock in the coming years, which is the most important driver of the share price.
Future Generation Australia Ltd (ASX: FGX)
As I mentioned at the start, diversification is a powerful tool. A share's fund allows investors to gain a lot of diversification with just one investment. Future Generation Australia is a listed investment company (LIC) that is invested in multiple funds, so it offers significant diversification through just one investment.
Usually, fund managers charge a fee to manage money. However, all of the fund managers involved in Future Generation's portfolio don't charge a fee. They work for free to enable Future Generation Australia to make donations to youth charities each year. The investment returns have been solid and, as a bonus, have come with less volatility than the overall share market.
Plus, the Australian stock has increased its annual dividend each year for more than a decade.
REA Group Ltd (ASX: REA)
REA Group is one of the most Australian stocks you can get – it gives investors exposure to the property market.
Its key earnings generator is the real estate portal realestate.com.au, but it also owns various other Australian property-related businesses such as realcommercial.com.au, PropTrack, and Mortgage Choice.
The company has a very impressive market share in Australia, significantly ahead of Domain. It's able to achieve strong profit margins thanks to its pricing power, and I expect its Australian operations to earn significantly more in the years ahead.
As a bonus, the business has a very promising investment in REA India, which could become a sizable contributor in the coming years due to the scale of the Indian market and the ongoing adoption of digital tools by the population.
