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1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minuteA diversified Australian share portfolio spreads exposure across companies and industries rather than relying on a few holdings. You can broaden it further with international shares or other asset classes, but diversification cannot prevent losses or guarantee returns. The right mix depends on your goals, timeframe and tolerance for losses.
What diversification does—and what it cannot do
Diversification means spreading investments across different holdings to reduce the impact of any one company, industry or market on your overall portfolio. A company can fail, an industry can lag for years, or a market can fall. Holding investments with different exposures can soften the effect of some of those events.
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It does not remove market risk: a broad share-market decline can still reduce the value of a portfolio, and no mix guarantees a return. Moneysmart also identifies adverse currency movements as a risk for investors with overseas exposure.
Choose the scope of your portfolio
Australian shares only
Spreading holdings across Australian companies and sectors can reduce dependence on a single business or industry. But even many Australian holdings leave the portfolio exposed to one country’s market and economic conditions.
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Australian and international shares
Overseas markets may perform differently from Australia’s, so international shares can reduce reliance on a single market. They also bring currency effects: an unhedged global investment can rise or fall in Australian-dollar terms partly because exchange rates change. International holdings may involve additional tax requirements, so consider the product’s tax information and your circumstances.
Shares and other asset classes
A broader investment portfolio can include assets such as fixed income, property and cash as well as shares. These assets have different characteristics; combining them may reduce the effect of a share-market downturn on the total portfolio. The appropriate mix depends on your circumstances and risk tolerance, not a universal allocation.
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Choose how to hold your investments
You can select companies yourself, use pooled investments such as exchange-traded funds (ETFs) or managed funds, or combine approaches. An ETF investor owns units in a managed fund, not the fund’s underlying assets directly. A single ETF trade can provide exposure to a basket of investments, but the fund’s actual holdings and strategy determine how diversified it is.
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| Approach | What it can provide | What to check |
|---|---|---|
| Direct shares | Choice over individual companies and control of each holding. | Company and sector concentration; time and effort needed to research financial results, annual reports, debt, cash flow and dividends; brokerage when buying multiple holdings. |
| Australian equity ETF or managed fund | A basket of Australian shares through a fund; exposure may span company sizes or focus on a particular sector or strategy. | Index or strategy, underlying holdings, concentration, management fee and trading costs. A sector-specific fund is not broad-market exposure merely because it is an ETF. |
| Global equity ETF or managed fund | Exposure to overseas markets, regions, countries, sectors or strategies, depending on the fund. | Holdings and concentration, currency hedging, exchange-rate exposure, fees, trading costs and tax considerations. |
| Multi-asset fund | Exposure to a mix of asset classes through one fund, depending on its mandate. | Asset mix, strategy, fees, underlying exposures and whether the mix suits your timeframe and tolerance for losses. |
Buying several direct shares can take more research and involve brokerage on multiple purchases. An ETF transaction can provide exposure to securities in its index, but that does not mean every ETF is cheaper or better suited to every investor. Compare the total costs and holdings rather than relying on the product label.
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A practical process for building the portfolio
- Set your goals and timeframe. Decide what the money is for and when you may need it. Consider how much loss you could tolerate. Shares are not suitable for everyone, and these factors should inform your choices.
- Define what “Australian shares” means for you. If you want Australian-listed shares only, recognise that your country exposure remains concentrated. If you are considering international investments or other asset classes, account for the different risks they add, including currency and tax considerations.
- Choose direct holdings, funds or a combination. Weigh the control and research involved in selecting individual companies against the breadth, strategy, holdings and costs of pooled funds. Read the product information to find out what a fund owns and whether it tracks a broad market or follows a narrower strategy.
- Check overlapping risks, not just the number of holdings. Look across companies, sectors and countries. Several line items can still be exposed to similar risks, so count and variety alone do not establish that a portfolio is diversified.
- Review the mix and rebalance when needed. Holdings can grow or fall at different rates, shifting their weights over time. Rebalancing means restoring a mix that still suits your goals and risk appetite. One option is directing new contributions towards underweight holdings; selling and switching can have tax consequences.
What to check before choosing a fund
- Underlying holdings: Identify the companies, markets and asset classes you would actually own through the fund.
- Concentration: Check whether a small number of holdings, one industry or one country dominates the exposure.
- Index or strategy: Understand whether the fund is broad-market, sector-specific, regional or based on another strategy.
- Costs: Consider management fees as well as brokerage and other trading costs relevant to how you invest.
- Currency treatment: For international funds, find out whether currency exposure is hedged and what exchange-rate movements may mean for your returns in Australian dollars.
- Tax information: Check the fund’s current tax information and how overseas exposure may affect your tax obligations.
- Fit: Consider whether the investment matches your timeframe and tolerance for losses.
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