“How many stocks should I own?” Whether you're an avid investor or just got into the investing game, this is an important question that you'll likely be asking yourself over and over again.
Depending on the type of stocks you invest in, the number of stocks you own can make or break your entire portfolio.
This post will help you decide on how many stocks you should own. There will be a section on diversification, one on personalization, and also some useful websites to check out. Whether you invest solely in index funds or also throw some individual stocks in the mix, you'll want to stick around for this post. Let's dive right in.
How Many Stocks Should I Own
If you have all your money in mutual funds you don't need to worry about this question (because your money is managed for you) but if not, here are a few factors you'll want to consider:
- What are your risk tolerances?
- How much money do you have to invest?
- Does your particular brokerage support fractional shares and are there any brokerage fees or commissions to be worried about?
Let's start with the first one: risk tolerances. Individual investors vary across the board when it comes to how much risk they can handle. For example, somebody straight out of high school without any debt will be able to tolerate more market risk and invest in different stocks (like growth stocks) than a retiree living on a fixed income.
Generally speaking, if you can tolerate more risk, you can afford to invest in fewer stocks (and have a more concentrated portfolio). On the other hand, if you can't handle any volatility, you probably shouldn't have all your money in a single stock.
Amount of Capital
The next thing you should consider is how much money you have to invest. If you're Warren Buffett, you'll certainly be making different investment decisions than if you have $100 to invest. Typically, the trend is that the more money you have, the greater your “ideal number of stocks” is.
This is because when you have a small pool of capital, you can afford to chase higher returns by taking on more risk. When you grow your wealth to a sizable amount though, you'll start to be more concerned about preserving your nest egg than the actual market returns year to year.
The last factor to consider is how flexible your brokerage is with buying stocks. The worst thing you can have happen to you is to buy all sorts of stocks from different companies in different industries and realize that you've paid a hefty commission on each purchase you've made.
Also, if you don't have a huge pool of capital and your brokerage doesn't support fractional shares, that might automatically rule out a few companies from your stock portfolio (if you only have $2000 to invest, you can't buy something like AMZN, currently worth over $3000).
The Case for Diversification
After thoroughly considering the factors laid out above, it's time to address the major thing that will likely sway your decisions: how much portfolio diversification do you want?
If you want a highly diversified portfolio (after analyzing your own situation and answering the above questions), the best way to get it is through buying ETFs and index funds, in which case you'll technically be owning one “stock” but the stock will have funds in tens or hundreds of other stocks (so you're really owning tons of stocks from lots of different sectors).
If this is the approach you want to take, you'll likely want to own over 50+ of your own stocks.
On the other hand, if you want a super-concentrated portfolio (and can accept the volatility that comes with it), you'll likely want to invest in a single company or just a couple of stock holdings (or, if you're really willing to do the work, get into real estate).
This will let you really take advantage of the growth of the company if it takes off and give you the potential to make a lot of money.
Let me caveat this next part by prefacing that I am not a financial advisor and that you should always do your own research before diving into personal portfolio management. Market conditions are always changing and the right number of stocks that you should own varies from person to person.
That being said, for most people, having a highly diversified portfolio is the right move. Owning a lot of different stocks is a good way to limit your downside and is honestly the main reason why things like index funds and ETFs exist.
Even a successful investor like Charlie Munger (who does tons of investment analysis and company risk assessments) holds many stocks at the same time. You might not have the absolute best returns this way, but you will certainly better prevent disaster.
Taking this all into account, if you're an everyday investor trying to grow your wealth over your lifetime, you're best off having a handful of stocks that you believe in taking up a good chunk of your total portfolio, and fill the rest of the portfolio with a diversified array of different companies. In terms of answering the actual question “how many stocks should I own?”
The answer is: probably around 15 to 30.
Useful Websites to Check Out
So you've done your own research and decided on the correct number of stocks to buy. Before you dive right in, feel free to check out some of these websites/apps that might help you out!
- Motley Fool – Not sure what stocks to look into? The Motley Fool could solve your problem. The Motley Fool is a private financial advice company that regularly posts about new and exciting stock picks.
- Webull – If you're looking for a way to both research stocks AND buy/sell them on the same platform, Webull is for you. With Webull you can trade stocks, ETFs, options, and even cryptocurrencies all commission-free!
- Robinhood – Fantastic for beginner investors, Robinhood lets you trade stocks commission-free via a simple mobile app. All you need to do is sign up, download the app, and you can get started (if you sign up now you might actually receive a stock for free!)
- M1 Finance – With M1 Finance you can manage all of your investments in the same place while also taking advantage of the platform's auto investment system. For intelligent investing of the future, check out M1!
- Acorns – Acorns works by “rounding up” your spending to the nearest dollar and investing the difference.
- Fidelity – Fidelity is an “old school” brokerage. ITs been around forver and its where I have most of my market invested funds.
Recap: How Many Stocks Should I Own
So there you have it: a detailed post regarding how to figure out how many stocks you should have in your portfolio. As a quick recap, here are some factors that you'll want to consider before trying to answer this question:
- Risk tolerance – how much risk you can handle will significantly affect how many stocks you should own.
- Amount of capital – somebody with a boatload of money will have a different optimal number of stocks than somebody without any capital.
- Brokerage details – commissions, fees, fractional shares… these are brokerage specific features that all matter when it comes to deciding how many stocks to own.
By taking these factors into account, you should be able to determine how concentrated you want your portfolio to be. From there, all that's left to do is pick a suitable number of stocks to buy (likely to be in the 10 to 50 range) and start investing!