How Many Stocks Should I Own?
Investing in stocks can be a great way to build your wealth over time. But before you get started, one of the key decisions you’ll need to make is how many stocks you should own. Not too many, or too few.
In this article, we’ll explore the different factors you should consider when constructing your stock portfolio, as well as providing some general guidance on how many stocks you should own.
Benefits of Owning Many Stocks
Having a diversified portfolio is one of the cornerstones of smart investing. And it generally means you will hold many stocks in your portfolio, usually 10–30 stocks. There are several advantages to this.
Firstly, adding more stocks to your portfolio can help to reduce the overall volatility of your investments. When the market is down, not all of your stocks will be down – there will always be some winners.
Secondly, owning many stocks helps to spread out the risk of investing. When you own fewer stocks, you are more dependent on those stocks to perform. But if you own stocks from many different sectors, you can reduce the overall risk of your portfolio.
And finally, owning many stocks may help you to capture broader market trends. If the whole market is going up, then you should be able to benefit from this, as there will be numerous stocks in your portfolio that may be performing above the overall market average.
Potential Downsides of Owning Many Stocks
But there are also potential downsides to owning too many stocks. Firstly, it can be time consuming. As your portfolio grows, it can be more difficult to keep track of each stock’s performance, when to buy and sell, and if dividends are paid out.
Also, it may be difficult to maintain any sort of coherent investing strategy. When you own many stocks, it can be hard to be selective when choosing stocks, and you may start to invest in stocks that have nothing to do with your overall strategy.
Finally, some people may feel overwhelmed by owning too many stocks. Making the decision to buy or sell a stock is a difficult one, and if you own many stocks it can be difficult to know which ones to focus on.
General Rules of Thumb for How Many Stocks You Should Own
So with these factors in mind, here are some general rules of thumb for how many stocks you should own:
• Beginner investors: Aim for 8–12 stocks. Don’t feel obliged to aim for too many stocks – it’s better to focus on quality.
• Intermediate investors: Aim for 10–20 stocks. This can help to diversify your portfolio and reduce any unnecessary risk.
• Advanced investors: Aim for more than 20 stocks. This can help you to capture more of the upside of the stock market, while also diversifying risk.
Remember that these are only general guidelines – the right number of stocks for your portfolio is going to depend on your individual risk and return objectives.
Things to Keep in Mind When Deciding How Many Stocks to Own
When deciding on how many stocks to own, here are some things to keep in mind:
• Your risk profile: How much risk are you willing to take on in pursuit of higher returns? This can help you to decide how diversified you need your portfolio to be, and how many stocks you should own.
• Your investment horizon: How long are you planning to hold on to your investments? This can help you decide whether to own more stocks or fewer stocks.
• Your portfolio structure: What type of stocks do you prefer to own? Are you aiming for a mix of value and growth stocks? Or dividend paying stocks? Knowing this can help you decide how many stocks you need to own to capture the desired characteristics in your portfolio.
• Your portfolio size: How much money are you investing? This can be a deciding factor in how many stocks you should own.
Choosing the right mix of stocks can be a challenging task. But by taking the time to consider your risk profile, investment horizon, portfolio structure, and portfolio size, you should be able to decide how many stocks you need to own to meet your goals.
If you’re a beginner investor, aim for 8–12 stocks; if you’re an intermediate investor, aim for 10–20 stocks; and if you’re an advanced investor, aim for more than 20 stocks.
No matter how many stocks you own, make sure you do your research and invest in stocks that have the potential to generate returns and meet your overall goals.
