How many stocks should you have in your portfolio? (2024)

FAQs

How many stocks should you have in your portfolio? ›

Understanding the Ideal Number of Stocks to Own

There might be other practical considerations that limit the number of stocks. However, our analysis demonstrates that, whether you own ETFs, mutual funds, or a basket of individual stocks, a well-diversified portfolio requires owning more than 20-30 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.

Optimal diversification strategy

Maintaining a portfolio with fewer than 20 stocks may leave you overly exposed to the performance of a limited number of companies or sectors, increasing the risk of significant losses if any of those investments underperform.

When an investment in a single stock represents more than 5% of a portfolio, T. Rowe Price advisors consider it to be worth addressing. Once a holding exceeds 10%, however, it represents a greater risk that requires more immediate planning.

Among the 47 stocks Berkshire Hathaway holds, the top 10 represent about 84% of the company's holdings. Here's a rundown of Buffett's 10 largest holdings based on Berkshire Hathaway's most recent filings, including its 13F filing from May 15, 2024.

It makes little sense if you know what you are doing. The idea is often described as “putting your eggs in one basket but watching that basket like a hawk”. In a similar vein, Buffett also came up with the idea of a 20-slot Punch Card, giving just 20 investments an investor was allowed to make in a lifetime.

The Rule of 90 is a grim statistic that serves as a sobering reminder of the difficulty of trading. According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

“How many stocks should I own as I begin my investing career?” As part of your initial portfolio management approach, you should aim to invest in a minimum of four or five stocks—one from most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities).

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

How many shares is a good amount? ›

The number of shares you should buy depends on the price of the stock and how much money you are willing to invest. For example, if a stock is worth $10 and you have a $10,000 portfolio, a good number of shares would be between 20 to 100 depending on your risk tolerance.

Options should be a limited percentage of your portfolio

My typical range is 2-4%. That said, the more cash and non-volatile assets you own, the more you can use options as a surrogate for both long and short stock and bond market exposure.

“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.”

Understanding the Ideal Number of Stocks to Own

The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly across various sectors or industries, is much less risky than a portfolio of only two stocks.

The effective number of stocks is a measure of index concentration, ranging between 1 (for a single stock) and the total number of stocks in the index (in the case of an equally weighted index). The measure is calculated as the inverse of the Herfindahl-Hirschman Index.

Concentrated positions of company stock can carry more market risk than a diversified portfolio, coupled with career risk tied to the company. Holding more than 5% to 10% of your portfolio in company stock is a level of concentration that merits attention. Trimming a position of company stock requires careful planning.

In our stock-based portfolios, the most concentrated Personal Portfolio will typically hold 15-25 stocks while a fully diversified Personal Portfolio is likely to hold 80 or more individual positions.

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.

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

Over-diversification lowers your returns while doing nothing to reduce your risk. Keep in mind that after you reach a certain number of stocks, the risk reduction benefit disappears, as do your expected returns. It's a lot easier to track 15 to 20 high-quality stocks than a large basket of 50 to 100 stocks.