I believe that diversification is important to achieve satisfactory returns with ASX shares in the short-term and the long-term.
Diversification doesn't just mean spreading your money among Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS).
I think it's important that investors spread their money across different industries and different businesses that have good growth prospects.
Here are three I think fit the bill:
Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)
The region that has created the most growth over the past decade or two has definitely been Asia. The way that China and now India are transforming themselves is impressive considering how fast it's being done. The wealth is flowing through to the population and the businesses are profiting from that.
This Vanguard exchange-traded fund gives exposure to 847 Asian businesses – so you're getting good diversification and you're not overly exposed to one share. Some of its top holdings include Tencent, Samsung, Alibaba and Baidu.
According to Vanguard, the whole index has a price/earnings ratio of 12.1x and a dividend yield of 2.6%. I prefer the idea of this ETF to an ASX one because of the potential growth.
Future Generation Investment Company Ltd (ASX: FGX)
This is a listed investment company (LIC) that invests in other leading Australian fund managers such as Paradice and Bennelong. However, there are no performance fees or management fees. Instead, it donates 1% of NTA per annum to youth-focused charities.
The investment in the underlying fund managers provides good diversification, its overall portfolio has beaten S&P/ASX All Ordinaries Accumulation Index since inception in September 2014 and it aims to pay a growing fully franked dividend, which it has done so since it started paying one.
It currently has a grossed-up dividend yield of 5.2%.
National Veterinary Care Ltd (ASX: NVL)
It can also be a good idea to diversify your portfolio with growing small caps. National Vet Care is the second largest veterinary clinic business in Australia & New Zealand after its recent Pet Doctors acquisition and an announcement of a further four Australian clinics.
With nearly 100 clinics the company is now reaching a genuinely large size. Economies of scale comes more into play.
The company is now projecting a large 40% increase of reported revenue over the next year and profit margins could grow as it integrates the new acquisitions into its network.
Foolish takeaway
There's no point investing in other shares just for the sake of diversification. It's important you believe they can deliver market-beating returns, that's why Future Generation and National Vet Care are already in my portfolio. I plan to add the Vanguard Asian ETF to my portfolio in the near future.
