Enhance Returns and Reduce Volatility: Diversifying Beyond the TSX and SPY Stock

Are you interested in holding a diversified portfolio while enhancing returns? Here are three top picks!

As a new investor, holding a diversified portfolio is one of the most important concepts to understand. One of the easiest ways to diversify is by investing in exchange-traded funds that follow an index. The two most popular indices are possibly TSX and S&P 500, which is often referred to as the SPY due to the SPDR S&P 500 ETF Trust. However, by holding onto such large funds, investors are bound to include lagging stocks or worse performers in their portfolios.

Because of this, I would recommend that investors instead look for stocks within both indices that allow them to hold a diversified portfolio. Both indices offer investors a plethora of outstanding companies across different sectors. In my opinion, the TSX and SPY both have different focuses in terms of the sectors that appear the most appealing in each index. For example, in Canada, our economy is largely driven by our financial and utility sectors. In the United States, there’s a much bigger focus on technology.

In this article, I’ll discuss two stocks that could help investors get started in the right direction. One will be from Canada and another from the U.S., with each operating in a different industry. By choosing solid companies like these two and diversifying into many different sectors, I believe investors could give themselves the best chance to succeed in the long run.

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Image source: Getty Images

Start with this Canadian stock

As mentioned previously, Canada’s financial sector really shines when you look at our economy. At the top of that sector, investors should find the Big Five banks. This is a group of banks that have managed to establish very formidable moats over their competitors. In my opinion, these five companies may be some of the most secure in the country. Of that group, Bank of Nova Scotia (TSX: BNS) stands out as my top pick.

What I like about this company is that it’s Canada’s most international bank. The other four banks in the Big Five focus their international efforts in the United States. However, Bank of Nova Scotia is strategically positioned within regions like the Pacific Alliance. This is a region that includes the countries of Chile, Columbia, Mexico, and Peru. Due to a rapidly rising middle-class economy, it’s estimated that the Pacific Alliance could see more growth than Canada and the U.S. over the coming years.

Look for outstanding tech stocks in the U.S.

When I look at the American stock market, I’m often reminded of how many great tech companies are listed there. For example, take Sea Limited (NYSE: SE) for example. This may be one of my favourite stocks ever. A Singapore-based company, Sea Limited is listed in the U.S. as an American Depository Receipt (ADR). Simply put, your shares track the performance of a foreign company’s shares in another country.

Sea Limited is a very appealing company because it operates in three distinct industries that are poised for tons of growth over the coming years. Those would be digital entertainment, e-commerce, and digital banking. In my opinion, the latter business segment is likely the most appealing. SeaMoney, Sea Limited’s digital banking segment, is growing at an impressive rate. Although it’s still Sea Limited’s smallest business segment, that might not be the case by the end of the decade.

Fool contributor Jed Lloren has positions in Bank Of Nova Scotia and Sea Limited. The Motley Fool recommends Bank Of Nova Scotia and Sea Limited. The Motley Fool has a disclosure policy.

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