The exact number of stocks to own varies from investor to investor, therefore it is hard to find consensus on the magic number of stocks one should own. In many cases, it comes down to your preferences and goals as an investor, your risk tolerance, your preferred strategy, how long you intend to invest, and so on.
However, there are a handful of factors you can think about that may point you in the right direction.
Factors to Consider
Beginning investors may want to start with fewer stocks until they get oriented. Having several is a good way to learn the ropes and get a feel for how it is to buy, sell, and trade stocks. Additionally, you can learn various strategies for diversification, assessing value, and monitoring trends with stocks without feeling overwhelmed by having too many stocks.
Having between 12-18 stocks provides the opportunity to diversify investments and round out your portfolio. More experienced investors may hold more than 30 stocks, especially if they have multiple investing accounts. Being willing to stay up on market news and keep up on your holdings is also reflective of your ability to manage multiple stocks.
The more stocks you add to your portfolio, the more it will look and act more like the stock market at large. This is optimal for reducing risk and producing a variety of results as opposed to one outcome. By broadening where you are purchasing shares from, you can identify shifts in sectors and reap gains from more than one source. Then, in the event of a downturn with a share or sector, you are less likely to feel the impacts as you may have been with all your investments in one place.
How much you are willing to put on the line and into assorted stocks may impact how many you should have. If you are willing to risk some of your money in shares that may or may not grow in hopes of high payout, you may look into having more investments or putting larger sums into more volatile stocks.
If you would rather not take the chance, having more conservative stocks and only a few that are higher risk may be the better approach. All in all, having some mix is optimal for diversifying your results and creating more balance in your portfolio. Using different investment vehicles minimizes risk.
How long you want to invest and what you want your investment to become matters. If you are a younger investor, you have more time to let your investments compound and mature. In other cases, you may have a set term where you would like to grow your money, and thus choose to put your money into more aggressive stocks in hopes of rapid growth.
The state of the market can lead to fluctuations in your stocks. This can happen systematically if there is a widespread economic downturn, or by sector if a specific industry is either thriving or barely surviving. Once again, diversifying is one way to dampen the potential risk. You may invest in both domestic and foreign stocks, or tech and industry to try and reduce the likelihood of a clean sweep on all of your stocks.
Quality always trumps quantity. Doing your research to find companies and shares with solid growth prospects is worth the effort. Look for things that are well managed with a promising history. Further, you can use technical analysis and fundamental analysis to develop a more comprehensive picture of the company’s success.
Is It Possible to Own Too Many?
Diversification is not always about owning as many stocks as possible. There is a science to achieving a balance of quality shares that influence your portfolio in positive ways. That said, if you own too many or only small shares of many, there is a chance that none of your investments will move enough to indicate good or bad performance.
Additionally, having too many stocks makes it harder to keep track of performance or fluctuations. Unless you have time to monitor all your stocks’ every last move, it can be more trouble than it is worth for little payout. Quantity does not automatically add up to quality, and the number of stocks in your portfolio is no exception.
What the Experts Suggest
Even between investing professionals, there is no golden number of stocks. Some range from as low as 12-18, up to 50. While there are differences of opinion even among the expert, some common pointers include:
- Own an amount that is manageable for you. Having too many can make it unmanageable to keep tabs on them all. Further, you may end up spread so thin that you do not get an eye for where there is true momentum going on.
- Understand the stocks you do have. Keep an eye on them and be aware of what you are getting when they do well.
- Prioritize quality companies. When investing, do so with the awareness that they are equipped to weather ups and downs in the market over some time.
There is not necessarily a consensus answer as to how many stocks you should own, as there are a variety of factors that influence how many you may want. Start by asking yourself what your investment goals are and how much time you can commit to managing your investment. Next, determine your risk tolerance and what your non-negotiables are when it comes to your investments.
Strong investing comes down to thorough analysis and thoughtful preparation. Becoming very clear about your investment goals and taking the time to learn the tricks of the trade will ultimately help you feel more prepared to manage your portfolio with confidence and clarity. The bottom line, you should invest in stocks in companies that you understand in detail. Knowing how they are performing, making their money, and the conditions that necessitate their success will get you a long way. Your investment is a choice and commitment to your belief in their success, and you should make your choices on where to invest accordingly.