Diversifying a portfolio is a great way for investors to achieve their long-term financial goals. Benefits arise because an outcome that hurts stocks in one industry could benefit stocks in another. For instance, a strike at an auto manufacturing plant could cause automakers' stocks to drop and simultaneously cause prices of rideshare stocks to rise.
The balance allows the investor to spread the risk over several stocks and industries and increases the chances of picking a growing stock.
There is no hard rule on how many stocks an investor should own to create a diversified portfolio. Still, if you carefully pick stocks with low correlation, you can achieve a diversified portfolio with 15 to 20 companies in it. Here are five growth stocks in diverse industries to get your portfolio started.
For the most part, people go to Starbucks (SBUX 1.48%) for coffee. If there was a sudden shortage in coffee beans and prices for that key input spiked and sustained at an elevated level for the long run, that would likely hurt shareholder returns.
Further, Starbucks has 32,943 locations, with stores in the U.S. and China comprising 15,288 and 4,973, respectively. Therefore, the company is dependent on the personal incomes and spending levels of people in the U.S. and China more so than any other region since the two make up over 60% of the company's store total.
Roblox (RBLX 3.23%) is a human co-experience platform. Its gaming segment lets players use devices from smartphones to laptops to tablets to play games and interact with others. The company boasts 42.1 million daily active users worldwide, with 12.6 million from the U.S. and Canada, and the rest internationally.
Roblox's players are mostly younger, with roughly 50% under the age of 13. In addition to being a different type of business than Starbucks, Roblox serves a mostly different customer base. Adults drink coffee; kids play games. There is minimal overlap between those who spend time on Roblox and those who drink coffee, and that's a good thing for portfolio diversification.
Airbnb (ABNB 2.33%) is a worldwide facilitator of travel. Folks look to the company's site to book stays in rooms and homes in locations, near, far, exotic, and pedestrian. The company benefits when folks are interested in traveling. That became a significant headwind at the onset of the pandemic as travel nearly came to a halt.
However, an investor who had both Roblox and Airbnb in their portfolio felt an offsetting impact from folks staying at home. The pandemic caused people to travel less, but it also kept kids at home a lot more, which meant more time to play games.
Pinterest (PINS -0.17%) is a social media app for folks looking for inspiration. The company has over 478 million monthly active users. That figure surged during the pandemic as folks were staying home more often. The surge in demand for in-home entertainment was one factor leading to a rise in consumer usage of Pinterest.
The company provides diversification with exposure to users across the world. Indeed, of its 478 million monthly active users, 380 million are from outside the U.S. That means that if, over the long run, international economies' gross domestic product increases at a faster rate than in the U.S., your portfolio will benefit from having Pinterest included.
In addition to a booming retail segment, it also has a lucrative cloud business, an advertising business, and a streaming video service that helps attract subscriptions to Amazon Prime. Amazon serves individuals, institutions, and corporations across geographies and industries. Despite the variety within Amazon, the company's business does not overlap very much with the other companies mentioned.
The five stocks above in no way complete a diversified portfolio for a growth investor. It gives you exposure to varying geographies, demographics, industries, and macroeconomic factors, and starts you off on a good foundation you can build from.