“How many stocks should I own?” This is one of our most commonly asked questions from new and experienced investors. Here’s the answer.
One question that Inner Circle members often ask is, “How many stocks should I own in my investment portfolio?” The right number of stocks for you to hold depends in part on where you are in your investing career.
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“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). But you can buy them one at a time, over a period of months or even years, rather than all at once. After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings out as we advise.
What does it mean to have a diversified portfolio?
Portfolio diversification is the process of making sure you balance your investments so they are not tied to one industry, geographic area, or investment type. Portfolio diversification gives you the greatest chance for safety and profit and is key to our three-part Successful Investor philosophy. As mentioned above, you can start to diversify your portfolio by spreading your money out across most if not all of the five main economic sectors (Finance, Utilities, Manufacturing, Resources and Consumer).
The proportions should depend on your objectives and the risk you can accept. Diversifying your portfolio can also mean balancing your investments geographically. Avoid focusing your portfolio on any one country or region. As well, a lower-risk way to add international exposure to your portfolio is to hold multinational U.S. stocks, such as IBM, McDonald’s and Walmart, which are active in markets all around the world.
Market leaders and market laggards both deserve a place in your portfolio. Over long periods, high-quality stocks play leapfrog. Some of the lowest-risk, highest-profit buys you’ll ever find are overlooked or out-of-fashion stocks of high investment quality that are coming back into investor favour.
“How many stocks should I own later on in my investing career?”
When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. If you’re married, it’s best to treat your family holdings as one big portfolio, even if you and your spouse keep your money separate. That way, you can be sure you aren’t operating at cross purposes, or investing too much of the family fortune in a single area.
When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to aim for.
Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes in your holdings. That won’t matter if you follow our three-part investment advice: invest mainly in well-established, mostly dividend-paying companies; spread your money out across most if not all of the five main economic sectors, and downplay stocks that are in the broker/media limelight.
Our upper limit for any portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth.
“How many stocks should I own?” Consider quality over quantity
The best investment plans or systems use a variation of the value investing approach. That is, they revolve around choosing high-quality investments and diversifying your holdings.
Safer investing also means taking a careful and methodical approach to investing that does not jeopardize your savings or your investment goals. There will always be some inherent risk when investing, so making safer investing decisions lets you minimize that risk.
The safest way in our view for Successful Investors to invest money is to place a lot of importance on investment quality.
Keep our three-part Successful Investor philosophy in mind while making stock picks
In summary, investors should never have all their money tied to one investment idea, location, industry or type. And to reiterate, at TSI Network we recommend our three-part Successful Investor philosophy for investing:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
We think about 40 stocks should be upper limit for a diversified portfolio. How many stocks are in your portfolio? Why?
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