What Is the Ideal Number of Stocks to Have in a Portfolio?
While it might seem that many sources have an opinion about the "right" number of stocks to own in a portfolio, there really is no single correct answer to this question.
The correct number of stocks to hold in your portfolio depends on several factors, such as your country of residence and investment, your investment time horizon, the market conditions, and your propensity for reading market news and keeping up-to-date on your holdings.
Key Takeaways
- While many sources have an opinion about the "right" number of stocks to own, there really is no single correct answer to this question.
- The correct number of stocks to hold depends on a number of factors, such as your investment time horizon, market conditions, and your propensity for keeping up-to-date on your holdings.
- While there is no consensus answer, there is a common thought that diversification is absolutely key to long-term returns.
- A well-diversified portfolio reduces the exposure to unsystematic risk—the risk associated with a particular company or industry.
- Consider, however, the transaction costs of holding an increasing number of stocks. It is generally optimal to hold the minimum number of stocks necessary to effectively remove their unsystematic risk exposure.
Understanding the Ideal Number of Stocks to Have in a Portfolio
Investors diversify their capital into many different investment vehicles for the primary reason of minimizing their risk exposure. Specifically, diversification allows investors to reduce their exposure to what is referred to as unsystematic risk, which can be defined as the risk associated with a particular company or industry.
Investors are unable to diversify away systematic risk, such as the risk of an economic recession dragging down the entire stock market, but academic research in the area of modern portfolio theory has shown that a well-diversified equity portfolio can effectively reduce unsystematic risk to near-zero levels, while still maintaining the same expected return level a portfolio with excess risk would have.
In other words, while investors must accept greater systematic risk for potentially higher returns (known as the risk-return tradeoff), they generally do not enjoy increased return potential for bearing unsystematic risk.
The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.
Consider Transaction Fees
Of course, the transaction costs of holding more stocks can add up, so it is generally optimal to hold the minimum number of stocks necessary to effectively remove their unsystematic risk exposure. What is this number? There is no consensus answer, but there is a reasonable range.
A well-diversified equity portfolio can effectively reduce unsystematic risk to near-zero levels, while still maintaining the same expected return level a portfolio with excess risk would have.
More recent research suggests that investors taking advantage of the low transaction costs afforded by online brokers can best optimize their portfolios by holding as many stocks as they want. However, there is a time-cost fallacy and most investors find their portfolios can perform just as well if not better, by choosing index-based securities instead. These are called exchange-traded funds (ETFs).
If you are intimidated by the idea of having to research, select and maintain awareness of many different individual stocks, you may wish to consider using index funds or ETFs to provide quick and easy diversification across different sectors and market cap groups, as these investment vehicles effectively let you purchase a basket of stocks with one transaction.
How Many Stocks Should You Own for a Diversified Portfolio?
There is no magical number, but it is generally agreed upon that investors should diversify their portfolio over the sectors they want exposure to, while keeping a healthy allocation in fixed-income instruments to hedge against individual company or sector downturns. This usually amounts to at least 10 stocks at the very least.
How Many Stocks and Bonds Should Be in a Portfolio?
The answer depends on the approach you adopt in your asset allocation. If you take an ultra-aggressive approach, you could allocate 100% of your portfolio to stocks. Being moderately aggressive. move 80% of your portfolio to stocks and 20% to cash and bonds. If you wish moderate growth, keep 60% of your portfolio in stocks and 40% in cash and bonds. Finally, adopt a conservative approach, and if you want to preserve your capital rather than earn higher returns, then invest no more than 50% in stocks. A good rule of thumb is to scale back on the percentage of stocks and increase your high-quality bonds as you age, in order to be better protected from potential market downturns. For example, a 30-year-old investor would hold 70% in stocks and 30% in bonds, while a 60-year-old would have 40% in stocks and 60% in bonds.
How Many Stocks Should I Own With $10,000?
Investors are choosing more often than not to diversify their investments using ETFs. This gives them access to many more companies than they would be able to have access to if they were to purchase individual shares of those companies. Ten thousand dollars invested into a number of ETFs could result in exposure to thousands of securities.
FAQs
First, a simple answer, followed by some academic thinking on this topic. In our stock-based portfolios, the most concentrated Personal Portfolio will hold 15-25 stocks while a fully diversified Personal Portfolio is likely to hold 80 or more individual positions.
What is the ideal number of stocks in a portfolio? ›
Assuming you do go down the road of picking individual stocks, you'll also want to make sure you hold enough of them so as not to concentrate too much of your wealth in any one company or industry. Usually this means holding somewhere between 20 and 30 stocks unless your portfolio is very small.
What is the effective number of stocks in a portfolio? ›
The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.
How much of your portfolio should be in stocks? ›
Stock allocations by age
Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.
Is 35 stocks too many for a portfolio? ›
Private investors with limited time may not want to have this many, but 25-35 stocks is a popular level for many successful investors (for example, Terry Smith) who run what are generally regarded as relatively high concentration portfolios. This bent towards a 30-odd stock portfolio has many proponents.
What is the best stock portfolio ratio? ›
Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.
What is a good portfolio size? ›
“It is generally recommended to have a portfolio size of at least $100,000 before considering investing in individual securities, and at least $500,000 before moving away from investment products and investing directly in stocks and bonds.”
What is the 90% rule in stocks? ›
Key Takeaways
The 90/10 strategy calls for allocating 90% of your investment capital to low-cost S&P 500 index funds and the remaining 10% to short-term government bonds. Warren Buffett described the strategy in a 2013 letter to his company's shareholders.
How many stocks does Warren Buffett own? ›
Among the 45 stocks Berkshire Hathaway holds, the top 10 represent about 87% of the company's holdings. Here's a rundown of Buffett's 10 largest holdings based on Berkshire Hathaway's most recent 13F filing, filed Feb. 14, 2024.
What does a good stock portfolio look like? ›
A diversified portfolio should have a broad mix of investments. For years, many financial advisors recommended building a 60/40 portfolio, allocating 60% of capital to stocks and 40% to fixed-income investments such as bonds. Meanwhile, others have argued for more stock exposure, especially for younger investors.
The Case for 100% Equities
The main argument advanced by proponents of a 100% equities strategy is simple and straightforward: In the long run, equities outperform bonds and cash; therefore, allocating your entire portfolio to stocks will maximize your returns.
What is the best portfolio allocation by age? ›
The Rule of 100 determines the percentage of stocks you should hold by subtracting your age from 100. If you are 60, for example, the Rule of 100 advises holding 40% of your portfolio in stocks. The Rule of 110 evolved from the Rule of 100 because people are generally living longer.
How many shares is a good amount? ›
Diversification is key: Aim for at least 10-15 different stocks in your portfolio to spread out your risk. This means investing a smaller amount in each company. Percentage of portfolio: Ideally, a single stock shouldn't make up more than 5-10% of your total investment amount.
What is the ideal number of stocks to have in a portfolio? ›
What's the right number of companies to invest in, even if portfolio size doesn't matter? “Studies show there's statistical significance to the rule of thumb for 20 to 30 stocks to achieve meaningful diversification,” says Aleksandr Spencer, CFA® and chief investment officer at Bogart Wealth.
What is the effective number of stocks? ›
Effective # of Stocks (Breadth) is the reciprocal of HHI (i.e., 1/HHI) and reflects the 'effective' number of stocks that are represented in the index. For example, a highly concentrated index with 100 stocks may be effectively represented by only 10 stocks.
What does a 70 30 portfolio mean? ›
Of course, everyone would prefer to have all the upside with no risk, but each of us must personally decide where we are comfortable. A 70/30 portfolio signifies that within your investments, 70 percent is allocated to stocks, with the remaining 30 percent invested in fixed-income instruments like bonds.
Is 70 stocks too many? ›
The old rule about the best portfolio balance by age is that you should hold the percentage of stocks in your portfolio that is equal to 100 minus your age. So a 30-year-old investor should hold 70% of their portfolio in stocks.
Is it good to have 100 stocks in portfolio? ›
Even if you have a huge stock portfolio, say more than Rs 1 crore, the number of shares you own should not exceed 20-25; you need to know that your time commands a value. Having too many stocks is fine only if you're an active investor or if investing is your business or career.
How many stocks should I own with $100k? ›
A good range for how many stocks to own is 15 to 20. You can keep adding to your holdings and also invest in other types of assets such as bonds, REITs, and ETFs. The key is to conduct the necessary research on each investment to make sure you know what you are buying and why.
