Are you diversified? Can your portfolio stand up against a market sell-off and give you a decent return over the long run?
You should limit yourself to the number of stocks you can stay well informed about. In business school, they might say having 20 – 40 stocks "diversifies" away enough of the individual stock risk, but for an individual, that would be way too much to keep track of.
You can find a balance with as few as 5 – 10 stocks. Other than picking different industries for diversification, you can also choose from various stocks types. They could be defensive, or fast growers and dividend payers. Having a mix of those can give you a balance of growth, income and stability.
If your portfolio is needing one kind to round it off well, or you're just starting to invest and want to have good diversification from the start, I think these three stocks could be prized additions to your portfolio.
> Defensive – even when the market is tanking, this stock can deliver returns
Ramsay Health Care Limited (ASX: RHC) is a great example of a defensive stock. As a private hospital operator, its services and facilities will always be in demand. One plus with this stock is that the company is in an acquisition phase that is generating healthy earnings growth.
> Fast grower – 15% – 25% earnings growth
SEEK Limited (ASX: SEK), the operator of the job search website seek.com.au, holds the number one spot in Australia and is continuously growing throughout Asia. FY 2014 underlying net profit was up 27% and analyst consensus forecasts are for earnings to rise an average 26% annually for the next two years. That fits the bill for a fast grower to a tee.
> Dividend payer – stable income with reasonable growth
Suncorp Group Ltd (ASX: SUN) is an insurance company and bank with such brands as AAMI and GIO. It has a good track record of raising dividends and just this reporting season it boosted its final dividend from 30 cents per share to 40 cps. On top of that, it declared a special dividend of 30 cps. That's the kind of potential income growth you want to have in your portfolio.
