If you are asking the question, “What is a good amount of stocks to buy?” then you should consider our recommendations on this key portfolio-building topic.
What is a good amount of stocks to buy? The right number of stocks for you to own depends, in part, on where you are in your investing career.
Initially, you should aim to invest in a minimum of four or five stocks—one each from most, if not all, of the five main economic sectors (Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities). If you’re just starting out as an investor, you can buy them one at a time, over a period of months or years. You can then gradually add new names to your portfolio as funds become available.
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When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. Note that it’s best to treat family holdings as one big portfolio, even if you and your spouse keep your money separate. That way, you can avoid 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, you may want to hold 25 to 30 stocks. Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes to your holdings. That won’t matter if you follow our three-part prescription for focusing on well-established companies, diversifying across the five sectors, and downplaying or staying out of stocks in the broker/media limelight.
What is a good amount of stocks to buy? The number of stocks is just the start of diversification
The upper limit for any sound portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth. Of course, owning an appropriate number of stocks is only one key to successful investing. You also need to avoid unintentional/unwanted concentrations in any one sector, industry or business.
Some investors make the mistake of focusing on shares of a handful of companies they are familiar with, due to employment or business connections, or personal interests. This can pay off in the right time and place, of course. If you devoted a lot of your portfolio to junior software or other tech stocks in the past few years, you could have achieved above average results. But you’d have done so by undermining your diversification.
Successful investors recognize that the surest long-term profits go to those who choose stocks from the middle of the risk spectrum—not too aggressive, but also not too “safe”, since safety can at times be an illusion. Spreading your investments out is of little help if you invest in a minefield.
What is a good amount of stocks to buy? 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.
What is a good amount of stocks to buy? Learn how to spot the characteristics of the top stocks to buy right now for growth
The tips below for lowering your growth investing risk have long been part of the advice we give you in our investment services and newsletters, including our flagship publication, The Successful Investor.
Don’t overindulge in more aggressive investments.
Be skeptical of companies that mainly grow through acquisitions.
Keep stock market trends in perspective, and realize that while the market often anticipates trends, no trend lasts forever.
Balance your cyclical risk by investing in some growth stocks that have freedom from business cycles.
Keep an eye on a growth stock’s debt.
Look for growth stocks that have ownership of strong brand names and an impeccable reputation.
Industry prominence, if not dominance, should be a factor in choosing growth stocks to invest in.
Dependable investments have the ability to serve all shareholders.
Hidden value in undetected assets can lead to greater long-term returns.
Top growth stocks have brand loyalty behind them.
The best growth stocks should have the ability to profit from secular trends.
Use our three-part Successful Investor approach for all of your investments
Hold mostly high-quality, dividend-paying stocks.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
Downplay or stay out of stocks in the broker/media limelight.
How many stocks do you have in your portfolio? How has that number changed throughout the years?
What would you consider to be the minimum number of stocks in a successful portfolio?
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